COMPANY LAW I LECTURE NOTES

Introduction to Company Law

• Types of business organization
➢ Sole proprietor
➢ Partnership
➢ Company
• Sole proprietor
➢ Management
➢ Capital
➢ Authority
➢ Liability
➢ Registration of Businesses Act 1956
➢ Less formalities in registration and establishment
• Partnership
• Company
➢ Companies Act 2016
➢ Management = Board of Directors
➢ Capital = Shareholders
➢ Authority = BOD acting on behalf of the company
➢ Liability = Company will be liable
➢ Report to Companies Commission of Malaysia = Provides regulatory
framework for corporate and business affairs in Malaysia
• Sdn. Bhd. is for private companies whereas Bhd. is for public companies
• Structure of a company
➢ Directors
➢ Shareholders
• Sources of law
➢ Companies Act 2016
➢ Security Commission Act 1963
➢ Capital Market and Services Act 2007
➢ Bursa Malaysia Listing Requirements
• Classification of companies
➢ Public company
o Consist of any member of the public and a large number of shareholders
o Ss. 2 and 25(1) of the CA 2016
o Can be listed in the Stock Exchange = May obtain funds from the public
➢ Private company
o Limited to certain people
➢ S. 41 of the CA 2016 = May change from public to private company and vice
versa
• Liabilities of members
➢ Limited liability
o Limited by shares
▪ Ss. 10(2) and 11(1)
o Limited by guarantee
 ▪ Ss. 10(3) and 11(2)
o Has the name Bhd. in their company name
➢ Unlimited liability
• Related companies
➢ Parent/Holding company and Subsidiary company
o Ss. 4 and 7
➢ Foreign company
➢ Investment company
• Incorporation of companies
➢ S. 14
o (1) Apply for incorporation to the Registrar
o (2) Not formed for unlawful purposes
o (3) Application contains certain information
Effect of Incorporation
• Separate legal entity
➢ S. 2 of the CA 2016
➢ S. 21 = Companies have unlimited capacity
➢ Company is a legal person having a distinct entity from its members
➢ Salamon v Salamon
o Sole proprietorship that later incorporated into a company
o Went into liquidation – Assets not enough to pay creditors – Liquidator
sued Salamon
o Agency principle was applied
o Company is not an agent or trustee of its members
o Members were not liable in respect of the company’s obligation
➢ Lee v Lee’s Air Farming
➢ Hew Sook Ying v Hiw Tin Hee
➢ People Insurance Co (M) Bhd
• Ability to own property
➢ Macaura v Northern Assurance
• Ability to incur its own liability
➢ Re Application by Yee Yut Ee
• Ability to sue and be sued
➢ Foss v Harbottle
• Perpetual succession
➢ Re Noel Tedman Holdings Pty Ltd
Company Law: Prospects & Significance by Ben Syazmin
• General Overview to the Changes of Companies Act 2016
➢ Minimum number of members
o S. 9(b)
➢ Minimum number of directors
o S. 97
➢ Share certificate
o S. 196(1)
 ➢ Company secretary
o S. 235(1)
• Differences between Directors and Shareholders
➢ Shareholders are the owners of the company
• Limited and Unlimited Liability
➢ S. 10(1)
o Limited by shares
▪ Liability limited to the amount on the shares they are holding or
to the amount unpaid in their shares
▪ Liability does not extend to the directors or shareholders
o Limited by guarantee
o Unlimited company
• Public and Private Companies
➢ Private company
o S. 42(1) = Limited by shares
o Sdn. Bhd.
o Does not exceed 50 shareholders
o Restricts the transfer/allotment of shares
o Required a minimum of one director
o S. 43(1) = Cannot offer shares or debentures to the public
o S. 15(1) = Prohibited from inviting the public to subscribe its shares
o S. 290 = May pass a written resolution
➢ Public company
o Limited by shares
o Only Bhd.
o Public companies required to have at a minimum of two directors
• Difference between Sdn. Bhd. and Enterprise
➢ Enterprise is not governed by CA 2016 but established through Partnership Act
• S. 14 = Application for a registration of a company
• JID = Judgement in default
Lifting the Corporate Veil
• Circumstance where the court will disregard the corporate entity
• Judicial Exceptions
• Attribution of some physical or mental state of character
➢ Determining the residence or nationality of the company
➢ Re FG (Films) Ltd
• Use of company as a sham or to commit fraud
➢ Company was incorporated to avoid legal obligation
➢ Gilford Motor Co. v Horne
➢ Prest v Petrodel Resources Ltd & Ors
➢ Tiu Shi Kian v Red Rose Restaurant Sdn Bhd
➢ TNB v Irham Niaga Sdn Bhd
• Company was employed as an agent of its controller
➢ Smith, Stone & Knight Ltd v Birmingham Corporation
• Corporate group functions as a single economic entity
 ➢ Holding and subsidiary companies functioning as a single entity
➢ Hotel Jaya Puri Bhd
➢ Edmund Charles Liebenberg v IGB-Griffin Manufacturing Sdn Bhd & Ors
• To ascertain the main beneficiary of a loan
➢ Harta Empat Sdn Bhd v Koperasi Rakyat Berhad
• Statutory Exceptions under the CA 2016:
➢ S. 75(5) = Liability of a director
➢ S. 539(3) = Liability of an officer who knowingly contracts with no reasonable
grounds of expectation that the company would be able to pay
➢ S. 540 = Liability of an officer to creditors for debts incurred by the company
• Liability of a Company in Criminal and Tort Law
➢ Mens rea is the directing mind and the will of the company
➢ H.L. Bolton (Engineering) Co. Ltd.
➢ Tesco Supermarket Ltd.
➢ May be vicariously liable for the negligence of its servants
Members’ Meeting and Decision-Making Process
• Requirements of valid meeting and binding resolution
➢ S. 309 of the CA 2016
• Convening a meeting
➢ S. 321(1) = Notice of a meeting shall be given to the members
➢ S. 310 = Parties who may convene a meeting
➢ S. 314
• Types of notice
➢ S. 319
➢ S. 320
• Content of a notice
➢ S. 317(1)
• Conduct of meetings
➢ Quorum
➢ Chairman
➢ Agenda
➢ Entitlement to vote
➢ Declaration of results
➢ Adjournment
➢ Minutes of meeting
• Ordinary resolution
➢ S. 290(3)
➢ Passed through simple majority
➢ S. 316 = Notice for ordinary resolution
• Special resolution
➢ Not all members entitled to vote
➢ Generally, alteration of the company’s constitution requires special resolution
➢ S. 292(1)
• Written resolution
➢ S. 297
 • Voting
➢ S. 293
➢ S. 330 = Voting by show of hands
Pre-Incorporation Contract
• A contract entered by a promoter on behalf of a company before its incorporation
• E.g. Contract for leasing apartments, purchase of a car
• A company has no legal existence before incorporation
• Common law
➢ Pre-incorporation contracts are held void as the company is not yet incorporated
or in existence
➢ Newborne v Sensolid
➢ Kelner v Baxter
• Malaysian law
➢ S. 65(1) of the CA 2016
➢ S. 65(2)
• Ratification can be either expressed or implied
➢ Ahmad bin Salleh & Ors. v Rawang Hills Resort Sdn. Bhd.
➢ Express ratification = Written or oral terms
➢ Implied ratification = Conduct of the company in relation to the contract
➢ Cosmic Insurance Co. Ltd.
➢ The usual matter to be discussed in the first board meeting is the ratification of
a pre-incorporation contract
Corporate Contracting
• S. 64 of the CA 2016
• BOD makes the decision for the company in entering into contracts
• Made by the issuance of a formal resolution to enter into a particular transaction or
authorizing an execution
• Execution of contracts
➢ S. 66
➢ Affixing a common seal
➢ Signature
o Two authorized officers
o If a sole director, in the presence of a witness
• Authority of person acting on behalf of the company
➢ Contract is binding if it is entered into by an agent of a company who has
authority
➢ Actual authority
o Authority granted to an agent by a principal under a consensual
agreement
o Agents may vest implied or express authority
➢ Ostensible authority
o Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd.
o A representation that the agent had authority
 o Such representation was made by a person who actual authority to the
company
o Contractor was induced by such representation
• Turquand’s Rule
➢ Indoor management rule
➢ Assumption of an outsider that there has been in compliance with the
constitution of the company and need not question the formalities provided they
acted in good faith
➢ S. 39
Promoters
• Definition
➢ The term ‘promoter’ is not defined in the CA 2016
➢ S. 2
➢ S. 14(4)
➢ Twycross v Grant
• Duties
➢ Duty to not make a secret profit
o Gluckstein v Barnes
➢ Duty of disclosure
o Erlanger v New Sombrera Phosphate Co.
• Breach of Duty
Constitution of a Company
• Known also as Memorandum or Article of Association
• Internal rules governing the management, relationship and activities of the company its
BOD and shareholders
• S. 31(1) of the CA 2016 = Optional for company limited by shares, mandatory for
company limited be guarantees
• S. 32(1) = Company limited by shares may adopt a constitution by way of special
resolution
• S. 32(2) = Constitution shall not be enforced if inconsistent with provisions of the CA
2016
➢ Lim Kok Wah & Ors v Lim Boh Yong & Ors
• S. 34(c) = Companies registered under CA 1965 may maintain their constitution
• S. 38(3) = Content of constitution for company limited by guarantee
• Object clause and corporate capacity
➢ Capacity of a company to enter into a contract
➢ Common law = Transactions which are inconsistent with the company’s object
are ultra vires – to protect shareholders and creditors – company legislation
allow amendment or alteration of the object clause before embarking on new
business
➢ Attorney General v Great Eastern Railway
➢ Ashbury Railway Carriage & Iron Co v Riche
➢ Malaysian position = Doctrine of ultra vires is relevant
 ➢ S. 20(1) = Transaction not invalid merely because beyond corporate capacity of
the company
• Doctrine of constructive notice
➢ S. 39 = No assumption that a person shall have knowledge of the constitution
of a company
• Effect of the constitution
➢ S. 33(1) = Constitution shall bind the company and its members
➢ An outsider cannot rely on the constitution of a company to file an action and
establish his rights – can rely only to established statutes and law
➢ Employee is not necessarily a member/insider of the company
➢ Wong Kimm Fatt v Leong & Co. Sdn Bhd
➢ Hickman v Kent
➢ Eley v Positive Gov. Life Assurance
➢ Salmon v Quin & Axtens
• Alteration of the constitution
➢ S. 36(1) = Company may alter or amend the constitution by way of resolution
➢ Notification to Registrar within 30 days after special resolution is passed
➢ S. 36(2)
➢ S. 292 = Special resolution is a resolution made at a general meeting where ¾
of the members vote in favor of the proposal
➢ S. 37 = Alteration by way of application made to the court
➢ Restriction of alteration
➢ Basic principles of alteration
o Bona fide for the benefit of the company as a whole
o Allen v Gold Reefs of West Africa Ltd
o Sidebottom v Kershaw Lease & Co
o Brown v British Abrasive Wheel Co
o Dafen Tinflate Co Ltd v Llanelly Steel Co Ltd
o Expo Holdings Sdn Bhd & Ors v Toyo Ink Group
Share Capital
• Capital = Money or asset used by a company to undertake its business activities
• Share/Equity capital
➢ Contributed by people intending to be members of the company
➢ Have rights to control and distribution
➢ Return on investment upon availability of profits
• Loan/Debt capital
➢ Provided for a short term and expected to be repaid
➢ Have either no or limited rights
➢ Return on investment irrespective of profits
• Shares = Represents the interests of the shareholders in a company measure by sum of
money
➢ Interests
➢ Liabilities
• Allotment and issuance of shares
➢ SS. 75-78
 ➢ BOD has the power to issue shares
➢ S. 75(1) = May exercise powers after obtaining approval through resolution of
the company
➢ S. 69 = Shares may be issued in different classes
o To distinguish control and distribution rights and catering to different
capital needs
• Rights are stated in the terms of issue or recorded by a resolution of the company
• Classes of shares
➢ Classified based on rights attached to the shares
➢ Voting rights
➢ Entitlement to dividends – Fixed or variable – Cumulative or non-cumulative
➢ Priority in payment of dividends
➢ S. 89(1) = Shares are in the same class if rights are all identical
➢ S. 71 = Ordinary shares
➢ S. 72 = Preferential shares
➢ S. 72 = Redeemable preference shares
• Ordinary shares
➢ Right to attend meetings
➢ Right to vote in resolutions
➢ Right to equal share in distribution for surplus assets
➢ Right to equal share in dividends
• Preferential shares
➢ S. 72(1)
➢ S. 90(4) = Rights prescribed for preferential shares
➢ Types:
o Redeemable = Terms of issue provides that it may be redeemed
o Convertible = Terms of issue provides that it may be converted into
equity shares
• Redeemable preference shares
➢ S. 72
➢ Redemption shall be taken from profits, fresh issue of shares or the capital of
company
➢ From capital of company shall require the BOD to make a solvency statement
lodged to the Registrar
➢ S. 113 = Solvency statement
➢ S. 112 = Solvency test – No ground on which the company would be unable to
pay its debts after the transaction
• Voting rights
➢ S. 69 = Shares in a company may confer special, limited or conditional voting
rights
➢ Preferential shareholders = No right to vote
• Dividends rights
➢ Return of investment made by the shareholders
➢ Based on availability of profits
➢ Ordinary = Rate of dividends determined by the BOD
➢ Preferential = Better rate of dividends as compensation for limited voting rights
 • Rights upon winding up
➢ Repayment of capital – Preferential shareholders have priority
➢ Sharing of surplus or profits – Ordinary shareholders have priority
• Types of capital
➢ Issued capital
➢ Allotted capital
➢ Reserved capital
➢ Unpaid capital
➢ Uncalled capital
• S. 84 = Power to alter share capital
➢ By special resolution
➢ Done by consolidation of share capital, conversion into stock or subdivision of
shares
• S. 85 = Pre-emptive rights to new shares
➢ Anticipatory
• Transactions affecting share capital
➢ Initial public offering (IPO)
➢ Private placement
➢ Rights issues
➢ Renouncable rights issues
➢ Bonus issues
➢ Dividend reinvestment plan
Variation of Class Rights
• Types of variation
➢ Cancelling existing rights
➢ Amending existing rights
➢ Issuance of new preference shares
• Challenging the variation
➢ S. 93
Share Buyback
• Payment by company to shareholders reabsorb the portion of its ownership
• Decision to reacquire company shares that were sold to the public
• Principles of share buyback
➢ Capital maintenance rule
➢ Reason of prohibition
o Prevent depletion of company’s capital
o Entrenchment of control
o Unfair manipulation of share price
o Unfair treatment between members
• Advantages
➢ Effective management of excess capital
➢ Effective repositioning of share price
➢ Ensure investor’s confidence
 • Ss. 112 and 127 of the CA 1950 = Public-listed companies permitted to practice share
buyback subject to certain conditions
• Conditions:
➢ S. 127 = Authorization by the constitution
➢ S. 112 = Board resolution and solvency statement
➢ S. 127 = Approval by shareholders
➢ Financing share buyback
➢ Pricing and quantity of buyback
Capital Reduction
• Process of decreasing a company’s share capital or equity through share cancellation
and return of cash to shareholders (share buyback)
• Types of capital reduction
➢ Paid up capital
➢ Authorized capital
➢ Issued and Unissued
➢ Subscribed
➢ Unpaid share
➢ Called and Uncalled
➢ Reserve
• Rationale
➢ Ensure share capital reflects the real value and financial position of the company
➢ S. 116(1)(a) = To extinguish liability of unpaid share capital
➢ S. 116(1)(b) = To cancel paid up capital which is lost or unrepresented by asset
➢ S. 116(1)(c) = To return to shareholders any paid up share capital not needed by
the company i.e. surplus
➢ (a) and (b) reflects a troubling situation in the company, which is contrary to (c)
• Procedures
➢ Must comply with statutory procedures and the company’s constitution
➢ Before CA 2016, all capital reductions must be carried out by way of special
resolution and sanctioned by the court
• Capital reduction by court
➢ S. 115(1)(a)
➢ S. 116 = Proposal by BOD requires approval of shareholders by way of special
resolution
➢ Fair and reasonable to the shareholders
➢ Does not prejudice the interest of creditors and ability to pay
• Solvency test procedure
➢ S. 115(b)
➢ Done by making a solvency statement and special resolution of members
➢ S. 117
➢ After passing of resolution, notice must be sent to Director General of Inland
Revenue
• Selective capital reduction
➢ Company cancels shares belonging to groups of selected shareholders within a
specific class
 ➢ Cancellation of shares is not required to be done equally across all classes
➢ To eliminate minority shareholders
• Other methods of capital reduction
➢ Methods that are not within the scope of ss. 116 & 117
➢ Return of capital to preference shareholders other than variance of shares
➢ Exchange of shares with loan capital
• Objection by creditors = Entities to whom the company owes money and in debt to
➢ S. 118
➢ Permitted to challenge the reduction in court within 6 weeks
• Inspection and lodgment
➢ Resolution required to be available for inspection by creditors for 6 weeks
• Court procedure vs Solvency test
Dividends
• Contractual debts by a company to its shareholders
• Interest of shareholders for their investment on shares of the company
• Based on authorization and approval of BOD
• Dividend cannot be paid from company’s capital, only by its available profit
• Types:
➢ Interim = Declared and paid before an AGM and full-year earnings
➢ Final dividend = Declared and paid after an AGM and the issuance of final-year
statements. Most common dividend
➢ Based on class of shares = Fixed, floating, cumulative and non-cumulative
dividends
➢ Based on distribution method
• Must make solvency statement before distribution of dividends
• Declaration and distribution of dividends
➢ SS. 131-133
➢ Common law prohibits return of capital to shareholders (capital maintenance
rule)
➢ Must ensure the company makes profit and that it is solvent
• Solvency requirement
➢ Balance sheet solvency test = Company has more income than expenses and
more assets than liabilities
➢ Trading solvency test = Ability of company to pay off debts as they fall due and
that the funds are available to settle its creditors upon demand
➢ S. 132(2) of the CA 2016 adopts the trading solvency test while prescribing the
time period for debts to be paid i.e. 12 months
➢ Chip Thye Enterprise Pty Ltd v Phya Gi Mo & Ors. = Applied a combination
of the two tests to determine solvency
• Authorisation and approval of distribution
➢ Dividend distribution policy from the company’s constitution
➢ Re Odessa Waterworks = Shareholders may pass a resolution to discourage the
distribution of dividends
• Methods of distribution
 ➢ Under common law, dividends can be paid only by cash unless the constitution
provides alternative methods
➢ Dividends reinvestment plan
• Unlawful payment of dividends
➢ S. 133(2) = Director or manager paying with knowledge that there is no profit
is guilty of an offence
• Liability of shareholders
➢ S. 133(1) = Company may recover from shareholder for the distribution paid
that exceed the value lawfully paid
➢ Exceptions; shareholder received payment in good faith and possessed no
knowledge that the company erred in its financial position
• Recovery of unlawful distribution of dividends
➢ S. 133(1) = Company may recover from shareholder
➢ Exceptions: shareholder received distribution in good faith or had no knowledge
that company did not pass the solvency test
➢ Seow Hoon Hin v Hartalega Holdings Bhd & Ors.
• Time bars dividends
Financial Assistance
• Doctrine developed to protect creditors
• Prohibited under common law because it is against the capital maintenance rule
• Malaysian position
➢ S. 123(1) = Company prohibited from giving financial assistance
➢ S. 67 of CA 1965
• Types
➢ Loan, guarantee or provision of security
➢ Given by company to purchase its shares
➢ Given by subsidiary to purchase the shares of the holding
• Elements
➢ Purpose that is to acquire company’s shares
➢ Chung Kiaw Bank Ltd v Hotel Rasa Sayang Sdn Bhd & Anor = Security
provided was for the acquisition of company’s shares, which is a financial
assistance in breach of s. 67 of the CA 1965 (pari materia to s. 123(1) of the CA
2016)
• Acquisition of assets by a company
➢ Belmont Finance Corporation Ltd. = Funds to acquire shares not a bona fide
commercial transaction but financial assistance
• Issuance of shares without payment
➢ Datuk Tan Leng Teck v Sarjana Sdn Bhd = Financial assistance for subscription
of shares
• Debt (Equity swap)
➢ Does not amount to financial assistance
➢ Intraco Ltd
• Assistance from company members (directors/shareholders)
➢ Does not amount to financial assistance
➢ Cheah Theam Swee
 ➢ S. 125 = Part of ordinary business to the company – To enable its employees to
purchase shares – Not regarded as financial assistance – Banking & insurance
• Effect of financial assistance
➢ S. 123(3) = Officer will be liable to fine or imprisonment
➢ S. 123(4) = Order of compensation
➢ S. 123(5) = Company may recover the amount made for any financial assistance
given
➢ S. 124 = Transaction of financial assistance remains valid despite contravention
➢ Datuk Tan Leng Teck v Sarjana Sdn Bhd & Ors = Transaction is still valid and
enforceable as the section itself saves the transaction
• Permission for financial assistance
➢ Not permitted for public-listed companies
➢ Public companies may do so provided that BOD passed a resolution, BOD made
a solvency statement and by a General Meeting’s approval
➢ BOD passes resolution
o S. 126(2)
➢ Solvency statement
o S. 126(2)(b)
o Made at the same day with the passing of BOD’s resolution
o S. 112 = Solvency test
o S. 113 = Approval by majority of directors
➢ General Meeting’s approval
o S. 126(2)
➢ Additional requirements
o Does not exceed 10% of the issued shares and reserves of the company
o Receives fair value in giving financial assistance
o Company liable for acting not in compliance with s. 126 under criminal
liability
Loan Capital
• Capital raised by a company from borrowings or loans
• Rationale against issuing shares to increase capital:
➢ Does not want to dilute the voting power of existing shareholders
➢ Payment of loan is tax-deductible
• Money lent to a company with the expectation that they will pay interest throughout the
term of the loan and repay the principal by the end of the term
• Difference between loan and share capital
➢ Debt
➢ Equity
• S. 21(1) of the CA 2016 = Power to borrow money
• Methods
➢ Debentures
➢ Security by charging its uncalled capital
➢ Floating charge over the company’s property
• Depends also on the constitution of the company
• Debentures
 ➢ Levy Aberconnis
➢ Bensa Sdn Bhd = Debenture should also include, besides debt, any obligation
to pay or any acknowledgement thereof
➢ May be in the form of a single document
➢ S. 158(10)
➢ Must comply with statutory provisions in CMSA 2007
• Company charges
➢ When company borrows money, the lendor/creditor may require the company
to provide a security for the loan
➢ Can either be fixed or floating
➢ S. 2 of the CA 2016
➢ Fixed charges
o A charge where the assets subject to the charge is identified from the
date the charge is created
o Company cannot dispose the charged asset without consent of the lendor
➢ Determining factor
o Whether the asset subject too the charge is under the control of the
creditor
o Asset is a type that is constantly changing and needs to be disposed in
the ordinary course of business
➢ Re Cosslett (Contractors) Ltd
➢ Floating charge
o A charge to assets in the present and the future
o Book debt = The list of debts owed by the company – Under control of
the company and not the creditor
o Inventory
o Stock in trade
o Company assets and undertaking
➢ Company assets and undertaking
➢ Inventory
o NGV Tech Sdn Bhd v Ramsstech Ltd
➢ Book debt
o Re Spectrum Plus Ltd
o Siebe Gorman & Co Ltd v Barclays Bank Ltd = Held as fixed charge
because there is designated bank account
o Re Keenan Bros Ltd = Held as fixed charge because there is a designated
account and withdrawals can only be made with consent of the chargor
o Re Brightlife Ltd = Held as floating charge
o Affin Bank Bhd v Malayan Banking Bhd = Charge over book debt
which gives freedom for chargor to draw from the account and use it in
the ordinary course of business is a floating charge
• Retention of title clause
➢ Romalpa clause
➢ Clause reserves title of the goods to the seller until full payment was made by
the buyer
➢ Re Bond Worth Ltd
 ➢ S. 529 of the CA 2016 (pari materia to s. 294 of the CA 1965) = Floating charge
created within six months of winding up shall be invalid unless company is
solvent after creation of the charge
• Crystallization
➢ Alteration from floating charge to fixed charge
➢ Company power to deal with assets shall seize
➢ Floating charge which is crystallized does not have the same status as an original
fixed charge – The one which is an original fixed charge is given priority
➢ Grounds for crystallization
o Winding up of a company
▪ S. 467
▪ Time of crystallization is when the winding up commences
▪ Re Panama
o Cessation of company business
o Appointment of a receiver or liquidator
▪ Appointment by the court or creditor under a debenture
agreement
o Occurrence of an event expressly defined in a debenture as a
crystallizing event
o Debenture agreement containing automatic crystallization clause
▪ This ground does not require any notice, contrary to the previous
one
▪ Re Manuwera Transport Ltd
▪ Silverstone Marketing v Hock Ban Hin Trading
▪ M’sian Inter. Merchant Bankers Bhd v Highland Chocolate &
Confectionary Sdn Bhd
• Registration of charges
➢ S. 352(1) = Charges registered with Registrar of Companies within 30 days after
its creation
➢ S. 353 = Registrable charges
➢ S. 352(2) = If otherwise, the charge will be void against the creditor – loses the
security interest to the company property and becomes and unsecured creditor
– company still needs to pay to the creditor
➢ Johore Para Rubber Co Ltd = Charge on land is effected once registration of
charge is made
• Effect of registration
• Priority of creditors
➢ Debenture holders/Chargee
➢ Assets used as security can only be used to pay off debts to the creditors
➢ Difference between secured and unsecured creditors
➢ Ranking in order of creation
➢ Crystallization does not affect its nature or priority
➢ Fixed charges have higher priority over floating charges, except if there is a
negative pledge clause in the instrument of floating charge, and the instrument
in fixed charge show knowledge over this clause
➢ Negative pledge/Restrictive clause = A negative pledge included in floating
charge to prevent company from using secured assets in the ordinary course of
business
o Company prohibited from creating subsequent charges without consent
of chargee
o Only affects priority to pay back loan capital
o Affected only if subsequent fixed charge has notice and knowledge
about it
o S. 352(1) of the CA 2016
o Affin v Maybank
➢ Preferential creditors
o SS. 191(1) & 292 (1)
o Kenneth Teh Ah Kim & Anor
➢ Unsecured creditors
o Last in priority
o Supplier of goods, traders etc.
o Claim would only be met after claims of secured creditor are met
o Unsecured creditor have priority over floating chargee