Apr 13, 2008

Company Law Tutorial 9&10

1. (a) Director is defined in Section 4 Companies Act, 1965. [No need explain]

Power of Directors

Management – Article 73

Delegating of powers – Article 91,93,86,76

Issue of shares – Article 2

To call for unpaid shares – Article 13, 28

Transfer of shares – Article 22,23

To sign the company’s cheque, negotiable instrument and receipts – Article 77

To keep the company’s common seal in safe custody – Article 96

To declare dividend – Article 98


1. (b) Section 122 (1) Companies Act, 1965 states every company must have at least 2 directors and a resident in Malaysia.


Section 122 (3) Companies Act, 1965 states the first director must be named in the MA or AA. If not, a company cannot be registered according to Section 16 (7) Companies Act, 1965.


Under Article 66 of Table A, subsequent directors are usually appointed through AGM.


Section 126 Companies Act, 1965 states the appointment of directors in public company to be voted on individually. For private companies, several directors may be appointed by a single resolution.


1. (c) Section 122 (2) Companies Act, 1965 states the director must be natural person of full age.


Section 122 (1) Companies Act, 1965 states every company must have at least 2 directors ad he is a resident in Malaysia.


Section 124 (1) Companies Act, 1965 states the director is appointed and is required to obtain share qualification, the shares must be obtained within 2 months. The first director is required to hold a minimum amount of shares so that the director is committed to his job and ensure the financial succession of the company. For subsequent directors, it depends on AA whether the subsequent directors to hold a minimum number of shares under Section 124 (3) Companies Act, 1965. If the director fails to do so, he must vacate the office of the director under Section 124 (4) Companies Act, 1965. The director will not be reappointed as director until he obtains the share qualification.



Disqualification

Section 129(1) Companies Act, 1965 states the person who is above 70 years old cannot become director of public company. However, for private company, there is no age limit on the director.

Section 129 (6) Companies Act, 1965 states that person above 70 years old can become director of public company unless the special resolution is passed.


According to Section 125 (1) Companies Act, 1965, a person who is bankrupt cannot become director.

Section 130 (1) Companies Act, 1965 prevents those who have been convicted the following offences to become the directors for 5 years. The offences include those connected to:

i) Promotion, formation or management

ii) Fraud, dishonesty punishable by imprisonment for a period of 3 months or more

iii) Offences under Section 132, 132A and 303 Companies Act, 1965

After 5 years, if any person who wants to become director, he must get leave from the court.


Section 130A Companies Act, 1965 states a person cannot become a director for 5 years if he continually sets up companies which fail in a period of 5 years.



1.(d) Statutory Duties

Section 131 Companies Act, 1965 states director must disclose whether directly or indirectly any kind of interest which could cause potential conflict of interest.


Section 132 Companies Act, 1965 states a director of a company shall at all times exercise his powers for a proper purpose and in good faith in the best interest of the company.


According to Section 132C Companies Act, 1965, the directors shall not carry out any rearrangement or transaction for

(a) the acquisition of an undertaking or property of a substantial value or

(b) the disposal of a substantial portion of the company’s undertaking of property

unless approved by general meeting.


Substantial value or portions means more than 25% of total assets of company, more than 25 % of total net profit of company, or more than 25% of issued share capital of company.


Section 132D Companies Act, 1965 states the directors shall not issue shares without getting approval of the company in general meeting.


Section 132E Companies Act, 1965 states a company cannot carry out any kind of transaction with director, substantial shareholders, people connected to the director, or people connected to substantial shareholder if they are buying hares of non-cash asset unless there is approval from the company. The value of non-cash asset means it is more than RM250000 or if its value does not exceed RM 250000 but must be at least 10% of the company’s asset value provided the minimum must be RM 10000.


Section 135 Companies Act, 1965 states the general duty to make disclosure of shares, debentures etc

- Particulars of such interest in share or debentures

- Particulars of any changes in the interest above mentioned

- In the case of public company when a director attains the age of 70 years



1. (e) Whether Jolie requires to hold a minimum number of shares in the company, it depends on Julie is the first director of the company or not. If Jolie is the first director of a public company, she is required to hold a minimum number of shares in the company according to Section 123 (1) Companies Act, 1965. However if the company has commenced for more than one year, it depends on AA whether she is required to obtain the minimum number of shares.


If Jolie is the director of private company, she does not need to hold minimum number of shares in the company.


According to Section 124 (1) Companies Act, 1965, Jolie is appointed as director and is required to obtain share qualification, she must obtain the shares within 2 months. If Jolie fails to do so, she must vacate the office of director according to Section 124 (3) Companies Act, 1965.



1. (f) According to Section 130A Companies Act, 1965, a person who continually set up companies which fail is disqualified to be director for 5 years. In this case, Jolie would not be disqualified as director because it happened only one time where the company was wound up 12 years ago and not continuously in 5 years.


1. (g) The removal of director depends on whether it is public company or private company. According to Section 128 Companies Act, 1965, the director public company can be removed by ordinary resolution but with special notice (28 days notice, 50% of members must agree)


Removal of director of private company depends on the AA. If AA is silent about it, then Jolie has to look at Table A Article 69. The removal of director of private company is done by ordinary resolution.


2. (a) According to Section 129 (1) Companies Act, 1965, a person who is above 70 cannot be a director of public company. Section 125 (1) Companies Act, 1965 states a person who is bankrupt is disqualified to become a director.


Therefore, Doremon is advised that he cannot appoint Jabba who is 72 years old to be director of Merry-Go Berhad according to Section 129 (1) Companies Act, 1965. But, Doremon can appoint Jabba who is above 70 years old to become director provided they must pass the special resolution according to Section 129 (6) Companies Act, 1965. Special resolution is defined in Section 152 Companies Act, 1965 which requires the company to give 21 days notice about the general meeting and at least 75% of the members agree to appoint Jabba as director.


However, Jabba is bankrupt. According to Section 125 (1) Companies Act, 1965, Doremon cannot appoint Jabba who is bankrupt to be director.


2. (b) Section 67 (1) Companies Act, 1965 states the company cannot provide financial assistance whether directly or indirectly to any person to purchase shares in the company. However, the director can issue the shares to Jack and Jill where the shares are to be paid out of an interest free loan provided it falls under Section 67 (2)(a) Companies Act, 1965, 67 (2)(b) Companies Act, 1965, 67 (2)(c) Companies Act, 1965.


Section 67 (2)(a) Companies Act, 1965 states the company can provide financial assistance provided the ordinary business of the company is money lending.


Setion 67 (2)(b) Companies Act, 1965 states the company may have a scheme for the purchase by trustees of fully paid shares in the company for the benefits of employees including executive directors.


Under Section 67 (2)(c) Companies Act, 1965, the company can provide financial assistance to its bona fide employees excluding directors in order that they may purchase fully paid shares in the company.


If the director can prove it falls under Section 67 (2)(c) Companies Act, 1965, then Jack and Jill can get the loan.


2. (c) Section 133 Companies Act, 1965 restricts the giving of such loan to directors or directors which are related to the company other than exempt private company. This also includes giving guarantee or security for the loan give to its directors.


Section 133A Companies Act, 1965 states a company except exempt private company cannot give a loan or guarantee or security to any person related with the director of the company on its holding company. But, there are exceptions:

(i) to meet the expenditure incurred by the director to enable him to carry out his duties

(ii) the director is full time employment with company ad the fund is to enable hi to purchase a home.

(iii) Where the nature of the business is lending money

(iv) Where the loan is made under a company scheme and get approval in general meeting.

Therefore Doremon definitely cangive loan to Barbie because Barbie is full time director and the loan is to purchase a home.


2. (d) According to Section 137 (1) Companies Act, 1965, a company cannot pay a director compensation for loss of office or retirement. However, there are exceptions:

(i) the payment is disclosed and approved by general meeting

(ii) if the payment is under an agreement

(iii) payment for damages for breach of contract

(iv) payment by way of pension or lump sum payment for past service and does not exceed the total salary of the director for past 3 years – Section 137 (5) Companies Act, 1965.


Whether ken will be retiring, as an executive director after having served the company for ten years will get the ex-gratia payment of RM 100000, it depends on Ken’s total salary of past 3 years. According to Section 137 (5) Companies Act, 1965, Ken only can get the ex-gratia payment of RM 100000 if the amount does not exceed the total salaries of Ken for past 3 years.




Question 3 Answer = Answer for Question 1(d)


4. Section 131 Companies Act, 1965 states the director must disclose any kind of interests in contracts, property that could cause potential conflict of interest.


Section 135 Companies Act, 1965 states the general duty of director to make disclosure of shares, debentures, contracts etc

-Particulars of such interest in shares or debentures

-Particulars of any changes in the interests above mentioned

-In the case of public company, when a director attains the age of 70 years


5. (a) Section 132C Companies Act, 1965 – the director cannot sell or acquire any company property of 25% of total assets, 25% of total net profit, 25% of issued share capital unless he gets approval from company.


Section 132E Companies Act, 1965 – same as Question 1 (d) Section 132E


5. (b) Section 67 Companies Act, 1965 – a company cannot give financial assistance whether directly or indirectly to any person to purchase shares in company.


Section 133 Companies Act, 1965 – restricts the giving of such loan to directors unless the exceptions apply.


6.According to Section 122A Companies Act, 1965, it defines who are the person connected with directors:

- a member of a director’s family includes a spouse, parent, child (including adopted child and step child), brother, sister, and the spouse of the director’s child, brother, or sister.

- A body corporate, which is associated with that director. (e.g. the director has a controlling interest in the body corporate)

- A trustee of a trust under which the director or a member of the director’s family is a beneficiary; and

- A partner of that director or a partner of a person connected to that director

[Question 6 must know, always ask in past year questions. No need to know subsections]


For Microsoft Word version , kindly click here.

*Thanks to Yet Ling contribution for her answers.

8 comments:

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