Question 1

a) Under s. 131 Companies Act 2016 (CA 2016), Dividends can only be paid when the Company
makes profit AND solvent. This is the Dividend Rule.

If the dividends were paid when the company has no profit, the value of the company's
assets will fall below its paid up capital (causing reduction in capital). That is why NO
dividend can be paid when the company makes NO profit.

Applying the law to the facts, FazFauzan Bhd cannot pay dividends for the year 2017 because
the company did not make any profit for the year 2017.

b) Under s. 131(2) CA 2016, contravention of the Dividend Rule will make the company, every
officer and any other person or individual guilty of an offence, and upon conviction can be
made liable to imprisonment (for a term not exceeding 5 years) OR fine (not exceeding RM3
million) OR both.

Under s. 132(5) CA 2016 imposes further penalty for wilful contravention. Under this section
every director of the company who wilfully pays or permits to be paid or authorizes the
payment or any unlawful distribution shall, on conviction, be liable to imprisonment (for a
term not exceeding 5 years) OR fine (not exceeding RM3 million) OR both.

Further, based on s. 133 (2) CA 2016, any director who is in contravention of s. 131 and s.
132 above shall also be civilly liable to compensate the company to the extent of the amount
that exceeded the value of the distribution of dividends that could properly have been made.
Question 2

a) By s.224 of the Companies Act 2016, a company (other than an exempt private company)
may not give loans to its directors or enter into any guarantee or provide any security in
connection with a loan made to such a director.

Where there has been a contravention of this section, the company may recover not only the
loan given in contravention of the section but also any amount for which it becomes liable
under any guarantee entered into or in respect of any security given contrary to the section.

However, the section has provided for several exceptions.

First, the prohibition and exceptions does not apply to exempt private companies.

Secondly, the company may provide a director with funds to enable him to meet expenditure
incurred or to be incurred by him for the purposes of the company or to enable him to
properly perform his duties as an officer of the company. Thus, for example, he may be
granted a loan for the purchase of a car if he requires it for the purpose of performing his
duties.

Thirdly, the company may provide a director, who is in the full time employment of the
company, with funds to enable him to purchase a home.

However, in the case of the exceptions, prior approval must be given at a general meeting.
Applying the law as stated above, Dee, being a director of the company, cannot be granted a
loan by the company unless he comes within any of the exceptions stated above. As Kay-ring
is a public company, it is not an exempt company. The only possible exception which may
apply is the second one, i.e. a loan to enable a director to meet expenses to enable him to
perform his duties. As he needs the fur clothing to enable him to carry out his duties
properly in the Arctic, he may qualify for such a loan, subject to obtaining the relevant
approval from the general meeting. As the loan has not been so approved by the general
meeting, the loan is in contravention of the Companies Act 2016.

b) The established rule is a company must ensure that a company's share capital is properly
maintained. Any purchase by a company of its own shares will certainly reduce the
company's capital, hence prohibited.9 See; Trevor v Whitworth).

The rule was later extended by statute to include prohibition of the giving of financial
assistance for the purchase of company's own shares. The relevant statutory provision is
s.123 CA 2016. By this section, a company cannot purchase its own shares. The company also
cannot give a loan to any person to enable that person to purchase its shares. The company
also cannot give a guarantee or provide security in respect of a loan made by another
financial institution to enable a person to purchase its shares. (see : Selangor United Rubber
Estate Ltd v Craddock).
However, s. 125 CA 2016 the company may provide financial assistance for the purchase of
its own shares under the following exceptions:

i) where the lending of money is part of the ordinary business of a company, (e.g. it is a
bank/financial institution) then the company may lend money in the ordinary course
of its business.
ii) If there is a Trust Scheme for employees - The provision of money for the purchase
of, or subscription for, fully paid shares in the company or its holding company, if the
purchase or subscription is by trustees for the benefit of employees, including
directors holding a salaried employment.
iii) If there is a share option scheme for employees - The giving of financial assistance to
employees (excluding directors) to enable them to purchase fully paid shares in the
company or its holding company.
iv) Under s. 126 CA 2016, by special resolution, a company may give loan not exceeding
10% of the shareholders' funds upon of the fulfilment of certain procedures.

Applying the law as stated above, the directors of Dinamik Sdn Bhd (DSB) may be advised
that unless the company's ordinary business includes the lending of money (which is not
stated in the given facts) or Shai is an employee of the company (which is also not stated), all
the contemplated courses of action by the directors are prohibited under the Companies Act
2016.

However, if DSB passed a special resolution after fulfilling the procedures in s.126 CA2016,
then DSB may give loan not exceeding 10% of the shareholders' funds to Shai.

The general procedures include the directors declaration that the giving of financial interest
is for the best interest of the company, it does not exceed 10% of the shareholders' funds,
the company is solvent and that the company will receive a fair value in return of the
financial assistance given to Shai. If these procedures are fulfilled, then DSB may give
financial assistance to Shai according to s. 126 CA2016.
Question 3

a) This question concerns the issue of consideration and statute-barred debts. One of the
elements of a contract is consideration, which may be said to be the price paid by one
party to a contract to obtain a reciprocal promise by the other. In the absence of
consideration, the contract is void. In the present problem, Lili lent RM30,000 to Tan in
October 2011. Tan promised to repay it within one month but has not done so to-date.
Lili wishes to sue Tan to recover the amount.

Lili may be advised that she will not be successful in such action against Tan as the debt
is now statute-barred. By the Limitation Act 1953, actions to enforce debts must be
commenced within six years from the date it became due (November 2011). It is now
seven years since the debt became due. Hence Lili will fail in any action to recover the
debt.

The answer will certainly differ if Tan has subsequently made a fresh promise to repay
the debt. This is because of s.26(c) of the Contracts Act 1950, which provides an
exception to the rule that contracts without consideration are void by providing that a
statute-barred debt may be enforced subject to the following conditions being satisfied:

i) The debtor must have made a fresh promise to pay in whole or in part a statute-
barred debt and
ii) The promise must be made in writing and signed by the person to be charged or
his lawfully authorised agent.

In the given problem assuming that Tan had given a written reply to Lili promising to
repay the loan. Presuming that the written reply had been signed by Tan, the above
conditions would be satisfied and Lili would be able to enforce the debt.

b) The issue in this situation is whether Zela can recover the amount of RM2,000 from her
neighbour Faz, on the ground that her consent to pay that sum was induced by coercion.
A contract must be entered into with the free consent of the parties. The consent would
not be free if it was caused, inter alia, by coercion. Such contracts are voidable under
s.15 of the Contracts Act. It states. 'Coercion is the committing or threatening to commit
any act forbidden by the Penal Code, or the unlawful detaining or threatening to detain,
any property, to the prejudice of any person whatever, with the intention of causing any
person to enter into an agreement'.

In Chin Nam Bee Development Sdn Bhd v Tai Kim Choo & 4 Ors (1988) 2 MLJ 117, the
respondents had entered into sale and purchase of homes to be constructed by the
appellants at the price of RM29,500. Subsequently, the respondents were required by
the appellants to pay an additional four thousand ringgit (RM4,000) failing which the
appellants threatened to cancel the bookings for the houses. The court held that the
agreement to pay the additional sum was caused by coercion within the meaning of
section 15.
As Zela had paid the sum of RM2,000 on the threat of detention and harm to her
property (the pet cat), it can be concluded that her agreement to pay the sum was
caused by the coercion of the neighbour. Therefore, the contract is voidable at her
option and she will be able to recover the said sum.
Question 4

a) s.3(1) - partnership is the relation between persons carrying on a business in

common with a view of profit. Carrying on business is a form of business activity. If
persons merely passive joint owners of property, that fact itself does not make them
partners. Under s. 4(a) Partnership Act 1961, stipulated that Joint Tenancy and
Tenancy in Common refers to ownership of property by two or more persons. Such
an ownership alone does not imply the existence of a partnership if the relationship
is not designated to share the net profit as a result of the relationship.

The given circumstances are not sufficient to conclude that there is a partnership
between the parties who are joint tenants/joint owners. If there is a business on the
property, there might be a partnership in the business BUT NOT in the property.
Partnership property is not to be presumed. Hence, A joint ownership of a land or
any property by two or more parties does not necessarily make them partners, not
even if they actually conducted their business activities on the property (See : Davis v
Davis) Hence, it can be concluded that Nara and Danish are not partners within the
definition of partners under the Partnership Act 1961.

b) Vee may be advised that a Partner who retires still liable after retirement if the
creditor knew to the partner before retirement and has not had notice of their
retirement. Vee must give notice to all creditors of the firm. Section 19(2)
Partnership Act 1961 (PA 1961) states that, generally when a partner retires from the
firm, he remains liable for the partnership debts incurred before and after his
retirement.)

However a 'retiring partner' may be discharged from any existing liabilities by an

agreement to that effect between himself and the members of the firm as newly
constituted and the creditors, and this agreement may be either express or inferred
as a fact from the course of dealing between the creditors and the firm as newly
constituted (See : Section 19(3) PA 1961).

Where the debts incurred after a partner's retirement, he is still liable towards
existing creditors / customers / clients who deal with the firm after a change in its
constitution unless he has given actual / express notice to such persons that he is no
longer a partner.

It is to be noted that retiring partners will not be liable after the retirement towards
new creditors / customers / persons who deal with the firm and who never knew
them to be partners of the firm by putting advertisements in the Federal Gazette
(see : s.38(2) PA1961).

In conclusion, a retiring partner does not automatically cease to be liable for the
firm's debts.
Question 5

a) Under the Companies Act 2016 (CA 2016), a person is qualified to become a
director if he is age of majority and not charged bankrupt. A bankrupt person is
disqualified from being a director of a company.

However, under CA 2016, a person who has been disqualified because he is a

bankrupt person, may still be appointed as director with the leave (consent) of:
i) the Official Receiver; or
ii) the court

In practice, if the person is declared bankrupt for more than 5 years, chances
are, the court is more favorable to grant leave to him to become a director (i.e.
after also taking into account the person's reputation and his valid grounds).

By applying the law above to the facts, Lazzatnya Sdn Bhd (LSB) may appoint
Kimmy as director of the company by making an application to the Official
Receiver or the court for leave (consent) to become a director.

LSB may have an obstacle in appointing Kimmy as a director because he is

disqualified since he is a bankrupt person. However, LSB may advise Kimmy to
apply for leave from the Official Receiver or Court to become a director in LSB.
Chances are the Court may grant leave taking into consideration that Kimmy was
already declared bankrupt 6 years ago and he also has an excellent reputation
and track record as a director.

b) Under Companies Act 2016 (CA 2016), a company cannot appoint an auditor
who is connected to the company. Examples of person connected with company
are officers of the company, directors, company secretary or employees of the
company. These person are disqualified from becoming directors of the same
company or its related companies.

Applying the law above to the facts, Mindy cannot be appointed as an auditor of
LSB since Mindy being a director of LSB is a "person connected" to the company.
Under CA 2016, she has a duty as a director to act for the best interest of the
company as a whole, whereas, an auditor has a duty to act independently from
the management of the company.

Thus, being the director of LSB is the obstacle which makes disqualify Mindy
from being LSB's auditor.