Question 1

Ladywhite Sdn Bhd, is a company dealing in the export of natural medication products. Last month,
Mary was sent to Brazil to represent Ladywhite Sdn Bld in the negotiation of a contract to supply
natural medication products with a Brazilian company. Unfortunately, the negotiations were not
successful, and it was made clear to Mary that the Brazilian company did not want to offer any
contract to Ladywhite Sdn Bhd.

Mary came back and reported this to the Board of Directors. Two weeks after, Mary resigned from
the company and managed to secure a contract to supply natural medication products with the same
Brazilian company in her own name. She had made a very substantial profit from this contract.

Only recently, Ladywhite Sdn Bhd had discovered about this and Ladywhite Sdn Bhd sought your
advice.

Nego-recover secret pft

Required: Advise Ladywhite Sdn Bhd on

(a) Whether there are any valid grounds for Ladywhite Sdn Bhd to take legal action against
Mary under the company law (3 marks)
Under companies act 2016(CA2016), directors are imposed certain duties in order to protect
the interest of the public good and protect the money invested in the company. Generally ,
the directors duties are:
i) To act with utmost good faith
ii) To act for the benefit of the company as a whole
iii) Directors must make a frank disclosure
iv) Directors are prohibited from making secret profits
v) Directors are to not have a conflict of interest with the company
This can be supported by the Industrial development case. The case held that if the
negotiations of the company were to fail, and the director took advantage of his
position he would be held accountable. The defendant would need to indemnify the
plaintiff the profit that had been made. This is due to a director have a fiduciary duty
not to put his personal interest above of the company’s. This would breach the
director duties of always acting in the company’s best interest.
By applying the laws above to the facts, we can see that Mary(ex director of Ladywhite Sdn
Bhd(LSB)) was sent to Brazil negotiate a contract to supply natural medication
products with a Brazilian company. However, it failed, and the company didn’t want
to offer a contract to LSB. Then Mary resigned from the company and managed to
secure a contract to supply natural medication products with the same Brazilian
company in her own name. This would breach the third duty as stated above. Mary
didn’t make a frank disclosure as to her reason to resign as a director of LSB.
Mary also breached the 5th duty. This is due to she as a director of should not put herself in a
position where she would have a conflict between personal interest and the best
interest of the company. This would be in breach with CA 2016.
Hence, LSB may take legal actions against Mary under CA 2016
 (b) Assuming Ladywhite Sdb Bhd succeeded in their legal action against Mary, what are Mary's
probable liabilities under the company law? (3 marks)

By applying the laws mentioned in (a) to the facts, assuming Ladywhite Sdb Bhd (LSB) succeeded in
their legal action against Mary, Mary would probably be held accountable towards LSB on all her
profits made. LSB would be able to recover said profits. Mary would be held both civilly and
criminally liable. She would be civilly liable to return the money and criminally liable for the breach
of director duties under CA 2016. If convicted, she would be imprisoned not exceeding 5 years or fine
not exceeding 3 million ringgit or both.

Question 2

(a)

Rini, Esop and Mala formed REM Bhd where Rini and Esop each hold 30% shares and Mala own the
remaining 40% shares. All 3 of them are also directors of the company. REM Bhd was in the business
of sale and distribution of computer equipments until recently Rini and Esop decided to venture into
the manufacturing of carpets. Rini and Esop signed a contract with Kripkrip Sdn Bhd to purchase the
machines and equipments for the new manufacturing business. RM800,000 was paid to KripKrip Sdn
Bhd being the price agreed in the contract. Mala disagreed and was very upset because all of REM
Bhd's profits is spent in the new venture. Mala also found out that Rini and Esop holds 98% shares in
Kripkrip Sdn Bhd.

Not minority SH /800k substantial value -connected person //BHD=NLC cause PLC - bursa

Required:

Explain whether Mala has any valid ground to stop Rem Bhd from venturing into the
manufacturing of carpets. (3 marks)

Under companies act 2016(CA2016), section 228 sates that a director shall not enter into any
contract with a director or shareholder or it’s connected person whether to enter into an
agreement , acquire shares or any non cash assets of requisite value unless said transaction was
previously approved in a general meeting first. The transaction would be void unless first approved
by a general meeting or by a resolution. Requisite value is said to be when the value of asset exceeds
RM 25 000. Section 223 CA 2016 states that the directors shall not put forward any transactions
relating to the acquisition or disposal of any property of substantial value unless said transaction was
previously approved in a general meeting. Substantial value assets are asstes which exceed 25% of
total company assets or net profits. A director’s primary duty is to act in good faith and always act in
the company’s best interest.

By applying the laws to the fact , we can see that Rini and Esop signed a contract and decided to
venture into manufacturing of carpets with KripKrip Sdn Bhd. RM800,000 was paid to KripKrip Sdn
Bhd being the price agreed in the contract. It was later revealed that Rina and Esop had 98%
shareholdings in KripKrip Sdn Bhd, thus making the company a connected person. Mala was upset
since they used up all of the profits. Since this is a transaction with a connected person to the
director, Rina and Esop should have gotten an approval from a general meeting prior to the contract
agreement. They did not get the approval. This is a breach of section 228. Since they(rina and Esop)
used up all the assets, this would also be a transaction of substantial value, hence they are also in
breach of section 223. Using up all the profits are surely not the best interest of the coy. They are
also breaching their primary duty as a director. This is a voidable contract. A member of the company
can apply to court to restrain the directors from performing the void contract.

Hence, Mala can take a few steps to stop the voidable contract from going through.

She can apply to court to restrain the directors from performing the void contract.

(b)

In the meantime, REM Bhd employed Jason as the company's salesman for the computer
equipments business. The contract of employment contained a clause preventing Jason from
approaching any of REM Bhd's clients for at least 2 years after Jason leave the employment. 3
months ago, Jason resigned from REM Bhd and started working for a new company, J-Jay Sdn Bhd
wholly owned by Jason and his wife. J-Jay Sdn Bhd is approaching clients of REM Bhd through Jason's
contacts whilst in employment.

Veil incorp lifted – jones v. Lipman

Required:

Explain whether there is any ground for the courts to allow REM Bhd to sue Jason for breach of his
employment contract. (3 marks)

Under contract act 2016(CA2016), the veil of incorporation is defined as a legal phenomenon which
upon the incorporation of a company, it becomes a separate legal entity from its members. This
would help to protect the shareholder from being made personally liable to the company’s debst and
obligations. Section 20 of CA 2016 further explains this. It states that generally, a company would
have its own legal entity from its members. It is also known as an artificial person with a veil of
incorporation. However, some shareholders use this to be let off of fraud or wrongful trading. Hence,
the court have been known to lift the veil of incorporation on certain cases. For example, if the
company was created to perpetuate fraud and avoid legal obligations. The members or officiers of
said company will be made personally liable and not the company. This can be supported by Jones’s
case.

By applying the laws above to the facts, we can see that Jason and his wife J jay purposely created a
company, J-jay Sdn Bhd in order to avoid legal obligations from Rem Bhd. The contract of
employment between Rem Bhd and Jason contained a clause preventing Jason from approaching any
of REM Bhd's clients for at least 2 years after Jason leave the employment. However, Jason used his
contact from his previous employment in his and his wife’s new company within the 2 years period.
Assuming that the court would likely decide to lift the corporate veil, Rem Bhd can successfully sue J-
Jay Sdn Bhd and claim damages or any profits made from Jason.