Apr 17, 2008

Company Law Tutorial 11&12

Question 1 & 2


‘A company secretary is a much more important person nowadays than he was in 1887. He is an officer of the company with extensive duties and responsibilities.’ There are no legal requirements to become a company secretary in hundred years ago. However, a person who wants to become a company secretary after hundred years must have professional qualification. The requirements become higher and the duties of a company secretary increase over the years. Today, the duties and responsibilities of company secretary are important compared with hundred years ago.


According to Section 139 (1) Companies Act, 1965, a secretary must be natural person of full age and must have its principal r only place of residence in Malaysia.



Section 139 (3) Companies Act, 1965 states the company secretary is required to be present at the company’s registered office either in person or by an agent during office hours when the office is required to be open and accessible to the public.



Under Section 139A Companies Act, 1965 a company secretary must be a member of professional body or any other body registered by the Minister.



Section 139B Companies Act, 1965 states the company secretary can be licensed by SSM.



According to Re Maidstone Buildings Provisional (1971), the 9 main duties of a company secretary are:



  • To carry out the function of the Chief Administrative Officer of the company
  • To ensure that the necessary registers required to be kept by the Act are established and properly maintained.
  • To ensure that all returns required to be lodged with SSM are prepared and filed within the appropriate time limit.
  • To organize and attend meetings of shareholders and directors, including sending out notice, preparation of agendas, etc.
  • To be conversant with meeting procedures.
  • To ensure that the company’s book of accounts are kept in accordance with the Act and that the annual accounts and reports are prepared in the form and at the time required by the Act.
  • Supervise the company’s share capital generally including preparation of allotment letters, issue of share certificate etc.
  • To attend to company’s insurance requirements
  • To be conversant with statutory requirements.

This list is not exhaustive. In other words, more duties can be increased.


Auditor

Question 1



According to Section 174 (8) Companies Act, 1965, auditor has a duty to report in writing to Registrar and bring such matter to the notice of directors.

[This section does not talk about the duty of auditor to report to members.]



Auditor has a duty to carry out the audit properly and present a reliable, independent report on the account and financial position of a company. The auditor’s report must contain the auditor’s opinion of the truth and fairness of the financial position as shown in the account.



Auditor has a duty to be independent.

Auditor has a duty to use reasonable care and skill.

Auditor has a right to access at all reasonable times to the accounting records and other records they require under Section 174 (4) Companies Act, 1965.



They may also obtain information of the subsidiaries for the purpose of group reporting under Section 174(5) Companies Act, 1965.



Yes, I agree with the quotation. An auditor is merely a watch dog but not a blood hound. The auditor’s function is as a watch dog. He must make sure his audit is to be carried out properly. He must exercise reasonable care and skill during his audit. However, an auditor is not a blood hound. If there is nothing to be suspicious, he cannot investigate further as his function is watch dog only. He can only investigate further when he finds that something is not right.





Question 2(a)



An auditor has a duty to carry out audit properly. Besides that, he has a duty to be independent and exercise reasonable care and skill during his audit. According to Section 174 (4) Companies Act, 1965, auditor has the right to access at all reasonable time to the accounting records and other records they required. They may also obtain information of the subsidiaries for the purpose of group reporting under Section 174 (5) Companies Act, 1965. On the other hand, auditor has a duty to report in writing to Registrar and bring such matter to the notice of directors under Section 174 (8) Companies Act, 1965.



Chandra can actually bring such matter to notice of the directors or in writing to the Registrar said that he was intentionally obstructed by the company officers from carrying out a full investigation into the company’s affairs under Section 174 (8) Companies Act, 1965. If he fails to do so, the penalty is imprisonment for 2 years or RM30000 or both.




Question 2 (b)



The duties of an auditor are to audit properly and his report contains his opinion of the true and fairness of financial position of the company, duty t be independent, use reasonable care and skill, access the records of the company he requires under Section 174 (4) Companies Act, 1965, access to the records of the subsidiary under Section 174 (5) Companies Act, 1965. According to Section 174 (8) Companies Act, 1965, auditor has a duty to report in writing to Registrar and bring such matter to the notice of directors.



Unqualified audit report means auditor forms his opinion that the accounts of company show true and fair view. Whatever stating in the report is true. However, Peat, auditor of Dunno Bhd failed to disclose the huge losses suffered by the compny’s foreign investments. Honey, who was outsider, bought the shares in Dunno Bhd and suffered losses. Peat has a contract with the company. Therefore, Peat only owed duty of care to Dunno Bhd but not Honey. Honey cannot sue Peat unless the elements under Hedley Bryne v. Heller & Partner are satisfied. The elements are the professional makes a statement to a third party, knowing very well that third part is going to rely on it, the third party relies on it and third parties suffers losses and professional will be liable unless there is disclaimer. [ Note: Hedley Byrne v. Heller & Partner – this is the correct case. Not Berne. ]



In this case, Peat did not know Honey rely on it. Therefore, Peat cannot be sued by Honey.



If Honey was member of Dunno Bhd and she relied on the auditor’s report to increase her shareholding in the company, she cannot sue Peat. This is because auditor owed duty to company but not to the members of Dunno Bhd. According to Caparo Industries v. Dickman, Peat did not owe duty of care to individual shareholder but owed duty of company as a whole. Therefore, Honey cannot sue Peat unless the elements under Hedley Bryne v. Heller & Partner are satisfied.



Question 2 (c)



Section 172 (140 Companies Act, 1965 states auditor may resign only if he is not the sole auditor of the company or at a general meeting of the company.



According to Section 172 (15) Companies Act, 1965, resignation takes effect upon the appointment of another auditor.




Question 3 (i)



Auditor has a contract with the company and he owes duty of care to company. If the auditor does not comply with the duties, the company can sue him.





Question 3 (ii)



Auditor owes duty of care to company but not shareholders. Shareholders can sue the auditor unless the elements under Hedley Bryne v. Heller & Partner are satisfied.





Question 3 (iii)



Auditor does not owe duty of care to outsider. Outsiders cannot sue auditor for breach of duty unless they satisfy the elements under Hedley Bryne v. Heller & Partner.

For Microsoft Word version , kindly click here.

*Thanks to Yet Ling for contributing the answers.

1 comment:

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