LAW649 CORPORATE LAW AND PRACTICE 1 SEMESTER MARCH-AUG 2024

TUTORIAL QUESTIONS

COMPANY LAW

TUTORIAL 5
NATURE OF COMPANY

QUESTION 1

Explain how a company limited by shares can convert from a public company to a private
company under the Companies Act 2016. Your answer should also reflect the consequences of
such conversion pertaining to the company's liabilities to creditors and its ability to transfer
shares to the public.
(10 marks)

QUESTION 2
Syarikat QQQ Bhd was set up solely to promote the artwork of Malaysian artists. In June 2019,
it paid out dividends of RM100,000 to its shareholders and purchased a land in Kepong for its
future art premise. The directors of the company insist that under the Companies Act 2016,
Syarikat QQQ Bhd need not have a constitution and is not subject to the concept of separate
legal entity. Further, Syarikat QQQ Bhd wishes to convert into a private company to restrict the
transfer of its shares. Advise the directors with reference to the Companies Act and decided
cases.
(20 marks)

QUESTION 3

Syarikat Moderne Sdn Bhd has thirty members and two directors. The company was
incorporated in 2019 and its constitution provides for the liabilities of its members to the amount
owing by the company to its creditors. Due to the recent pandemic, the company’s debts have
escalated. Last month, the directors decided to convert the company to a private exempt
company limited by shares.

The move is aimed at avoiding any public scrutiny of its financial statements and to avoid
payment of debts to its two main creditors namely MBB and PBB. Last week, a general meeting
was held whereby 75% of its members voted for the said conversion. It is also hoped that the
company can raise share capital of more than RM2 million after the said conversion. The shares
of the minority shareholders were purchased by one of the existing members namely Syarikat
Johnson Bhd.

Advise the Syarikat Moderne Sdn Bhd on all the issues stated above with reference to the
Companies Act 2016 and decided cases.
(10 marks)

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TUTORIAL QUESTIONS

TUTORIAL 5
SEPARATE LEGAL ENTITY

QUESTION 1

Bestnya Sdn. Bhd. (the company) has three shareholders, namely Joe, Jane and Jed. The
company has decided to employ Jane as its finance manager since she is a qualified
accountant. She will be paid a monthly salary of RM5000.00. The company's directors, Joe and
Jed seek your advice as to whether the employment of Jane by the company is legally
permissible considering she is also one of the shareholders.
Advise Joe and Jed.
(6 marks)

QUESTION 2
Ajid and his wife Ayu formed "Selesa Bhd.' a private limited company, having an authorized
share capital of RM1 million made up of 500,000 shares of RM2.00 each. Ajid holds 99 percent
of the shares, while his wife holds the remainder. The company runs a car rental business.
Discuss the legal position in the following situations:
(a) Ajid, who worked as Selesa Bhd's driver on weekends met with an accident. His
passenger, Dido was seriously injured. The accident was solely caused by Ajid's
negligent driving. Dido wants to know the parties against whom legal action may be
instituted.
(10 marks)

(b) Ownership of the car involved in the accident had been transferred to the company but
the car is still insured in Ajid's name. Ajid wishes to claim from the insurance company
for the cost of repair. He wishes to know his chances of success.
(10 marks)

(c) Ayu died a year ago. Ajid continued with the business after her death, and six (6)
months ago borrowed RM250.000 from Bank Bantu in order to expand the business.
The loan has not been paid. The Bank wishes to know who could be made liable for the
repayment of the loan.
(10 marks)

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TUTORIAL QUESTIONS

QUESTION 3

a) In the celebrated case of Salomon v Salomon & Co Ltd (1897) AC 22, Lord Halsbury LC
observed: 'Either the limited company was a legal entity or it was not. If it was, the
business belonged to it and not to Mr Salomon.If it was not, there was no person and no
thing to be an agent at all and it is impossible to say at the same time that there is a
company and there is not.'

Discuss the above statement. Illustrate your answer with relevant statutory provisions
and decided cases.
(15 marks)

b) Osman is the owner of a large bulk-carrier called Ocean-Star. The ship was valued at
RM3million and was insured for that sum with Prudentials, in Osman's name.
Subsequently, Osman incorporated Osmanz Sdn Bhd in which he held all the shares but
one which was held by his wife as his nominee. Ocean-Star was then sold to Osmanz
Sdn Bhd and the purchase price was secured by a debenture issued in favour of Osman
giving him a fixed charge on the only asset of the said company namely Ocean-Star.
While carrying a valuable cargo on charter to Kuwait, the Ocean-Star was attacked by
pirates and sunk.

Consider whether Osman or in the alternative Osmanz Sdn Bhd could claim to be
indemnified by Prudentials for the loss of the bulk-carrier. Discuss your answer with
reference to relevant statutory provisions and decided cases.
(5 marks)

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LAW649 CORPORATE LAW AND PRACTICE 1 SEMESTER MARCH-AUG 2024
TUTORIAL QUESTIONS

TUTORIAL 6
LIFTING OF CORPORATE VEIL

QUESTION 1
To what extent is it correct to say that incorporation clothes a company with a corporate veil
through which the courts cannot see? Discuss.
(20 marks)

QUESTION 2
Jati Bhd (Jati) has a number of wholly owned subsidiaries, including Hayat Bhd (Hayat) and
Vesta Bhd (Vesta). The directors of Jati are also directors of these two subsidiaries.
The business premises occupied by Hayat are owned by Vesta. In January 2006, the premises
were purchased by the government for a road widening scheme. However, the government is
only prepared to offer compensation to Vesta for its business disruption and its interest in land.
The government has refused to recognize the disruption to Hayat's business on the basis that
Vesta is the owner of the land.
Vesta, while originally engaged in house building, has incurred huge losses in speculative
property dealings. In a board meeting of Vesta, the accountants of Vesta expressed their view
that Vesta does not have enough money to complete its housing project. Jay, one of the
directors of Jati, gave an undertaking that Jati will take the responsibility for any shortfall. The
creditors of Vesta are now pressing Jati to pay its subsidiary's debt because without support
from Jati, Vesta will go into insolvent liquidation.
Advise:
a) Hayat whether it is entitled to the compensation for the acquisition of land and premises
by the government; and

b) Jati whether it is liable for Vesta's debts.

(20 marks)

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TUTORIAL QUESTIONS

QUESTION 3

Syarikat ABC Bhd and Syarikat XYZ Bhd are related corporations under the Companies Act
2016. The profits and business ventures of Syarikat XYZ Bhd are made under the directions of
Syarikat ABC Bhd. Syarikat XYZ Bhd has no employees of its own and was set up with the
primary purpose of importing foreign workers for the labour force of Syarikat ABC Bhd. The
debts of Syarikat ABC Bhd are normally settled using the profits of Syarikat XYZ Bhd. Last
month, at the general meeting of Syarikat ABC Bhd, it was agreed that all payments of
contractual transactions involving Syarikat ABC Bhd can only be made by cheques. The
company secretary of Syarikat ABC Bhd had stated in the ensuing resolution that all contractual
payments must be made via internet banking. Last week, Syarikat ABC Bhd made a cash
payment of RM500,000 to Vertrue for the purchase of 50 tractors. The members of Syarikat
XYZ Bhd objected to the said payment since it was not made via internet banking. With
reference to decided cases and the Companies Act 2016, advise the companies on the
following.

a) Whether the courts are able to lift the corporate veil between Syarikat ABC Bhd and
Syarikat XYZ Bhd.
(15 marks)

b) Whether the objections made by the members of Syarikat XYZ Bhd stated above can be
justified using the indoor management rule and its exceptions.
(15 marks)

c) Explain whether your answer be different if the contract of Syarikat ABC Bhd with
Vertrue is entered into before Syarikat ABC Bhd is incorporated.
(10 marks)

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LAW649 CORPORATE LAW AND PRACTICE 1 SEMESTER MARCH-AUG 2024
TUTORIAL QUESTIONS

TUTORIAL 7
CONSTITUTION OF COMPANY

QUESTION 1

The constitution of Syarikat Reader Bhd states that the main object of the company is to
manufacture and sell sardines imported from Norway. Last month, the company purchased 60
acres of land to build shopping malls as its expansion plan for 2020. The general meeting of the
shareholders held last month, approved of the said plan though it clearly contradicts the
company's constitution.

The directors argued that under the Companies Act 2016, the doctrine of ultra vires has been
abolished. Further, some of the shareholders intend to alter the company's constitution to
enable the company to carry out the expansion plan but is unsure on the steps required.

With reference to the Companies Act 2016 and decided cases, advise the shareholders on the
issues stated above.
(20 marks)

QUESTION 2
The constitution of Merry Bhd provided, inter alia, that "any members wishing to sell their shares
must first offer them to members who are willing to buy". Kate plans to further her studies
overseas and wishes to sell her shares. Lara, who is also one of the shareholders, is interested
in buying the shares. However, Kate refuses to sell them to Lara because of their personal
differences. Instead, Kate wants to sell the shares to Kimi, her best friend, who is not a member
of the company.

To avoid future disputes among the shareholders, Kate who owns 60% of the shares in the
company wishes to amend the said clause in the constitution to "any members wishing to sell
their shares may sell them to any person, as long as they obtain the approval of the majority at
the general meeting".

In the light of the facts above, answer the following separate and independent questions:

i) Assumed that the constitution had not been amended yet, is Kate bound to sell her
shares to Lara?
(10 marks)

ii) Advise Lara whether she is bound by the amended clause in the constitution.
(10 marks)

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LAW649 CORPORATE LAW AND PRACTICE 1 SEMESTER MARCH-AUG 2024
TUTORIAL QUESTIONS

QUESTION 3
Golden Bhd (Golden) has a number of wholly owned subsidiaries including Bronze Sdn
Bhd(Bronze) and Jade Sdn Bhd(Jade). The directors of Golden are also the directors of Bronze
and Jade.
The business premises (the land) occupied by Bronze are owned by Jade. In June 2011, the
premises were compulsorily acquired by the government for a road widening scheme. The
government is only prepared to pay compensation to Jade for its business disruption because
the business premises is owned by Jade. Bronze's claim for compensation on disruption of its
business has been rejected by the government on the basis that Bronze is not the owner of the
land.
The Articles of Association of Bronze contained inter a/ia the following clauses:
Clause 10 "Any borrowing of more than RM100,000 must be authorized by a general
resolution."
Clause 11 "Gem shall be appointed as the company's accountant for a period of 5 years with a
remuneration of RM120,000 per annum".
Bronze recently has decided to expand its business and consequently obtained a loan of
RM150,000 from Bezee Bank Bhd(the bank). Bronze did not call for a general meeting since it
was pressed for time. Instead the authorization to borrow was given only by two of its directors.
Bronze defaulted in its repayment to the bank and when demand for payment was made Bronze
refused to pay on the ground that the loan was unauthorized.
Gem, a shareholder, was appointed as an accountant and a separate contract of employment
was entered into by Gem and Bronze. Recently disagreements arose between Gem and
Bronze. The board of directors have decided to appoint Ruby as Bronze's new accountant and
to dismiss Gem without any compensation. Bronze has altered its articles of association by
deleting any reference to Gem. Gem is very upset with the dismissal and now contemplating
legal action against Bronze.
Discuss all the relevant legal issues in the above situation.
(30 marks)

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LAW649 CORPORATE LAW AND PRACTICE 1 SEMESTER MARCH-AUG 2024
TUTORIAL QUESTIONS

TUTORIAL 8

CORPORATE TRANSACTION n INDOOR MANAGEMENT RULE

QUESTION 1

a) Explain the principles of law in the case of Royal British Bank v Turquand (1856).
(5 marks)

b) Rodenrid Sdn Bhd is a company involved in pest control. In 2008 Ratty was appointed as
managing director of the company by a board resolution, which gave him exclusive power to
manage the company, subject only to a requirement to get the approval of the board for all
contracts in excess of RM 100,000.

On behalf of the company, Ratty began negotiating for the purchase of insecticides from
Pesty, who had supplied the company with similar products for a number of years. Before
these negotiations were concluded, Pesty accepted an invitation to become a member of
the board of Rodenrid Sdn Bhd, and thenceforth duly attended its board meetings. Some
months after this, Ratty without getting the approval of the board, signed a contract with
Pesty for the supply of RM200.000 worth of insecticides.

Preliminary trials with these insecticides have revealed that they are not as effective as the
company had been hoping. The board, with the exception of Ratty and Pesty is now seeking
some way in which the company can claim that it is not bound by its obligations under the
contract.

Advise the board.

(15 marks)

QUESTION 2
Syarikat DuBronx Bhd was incorporated in 2018. In January 2021, it conducted its annual
general meeting whereby the majority shareholders voted for a resolution enabling the company
to take loans up to maximum limit of RM300,000. The constitution of the company is silent on
the amount of loan which the company can borrow. Due to depression, the company secretary
failed to put into writing the mandate of the said meeting. The assets of the company are
currently worth RM2 million. The total amount of the company’s outstanding debts as of last
month stands at RM1.8 million.
In October 2021, the credit officer of the company known as Chandler, took a loan from MBB on
behalf of the company. The loan amount is RM500,000. When the directors of the company
discovered what had transpired, they wanted to cancel the loan. The bank refused as they had

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LAW649 CORPORATE LAW AND PRACTICE 1 SEMESTER MARCH-AUG 2024
TUTORIAL QUESTIONS

already released 80% of the said loan. The company wants to claim from the Chandler for
taking a loan which the company cannot reimburse.
MBB claims that it is insulated from the actions of the company secretary since depression is
not a legal excuse under company law. Syarikat DuBronx Bhd argues that the MBB loan
department manager is a shareholder of the company and actually attended the meeting held in
January 2021.
With reference to the Company’s Act 2016 and decided cases, advise Chandler, MBB and the
company.
(20 marks)

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LAW649 CORPORATE LAW AND PRACTICE 1 SEMESTER MARCH-AUG 2024
TUTORIAL QUESTIONS

TUTORIAL 9

PROMOTER N PRE- INCORPORATION CONTRACT

QUESTION 1

Maju Bhd received its certificate of incorporation in February 2005. Ken, Peter and Clarke were
appointed as directors of the company soon after incorporation. In September 2004, Ken as
promoter of the company bought a piece of land in Shah Alam for RM300.000, which he later
sold to the company for RM400,000. He told Peter about the profit he made. However, he failed
to inform Peter that the vendor of the land had given him RM3000 as an inducement for Ken to
purchase the land for the company.

In November 2004, Ken sold his lorry to the company for RM50.000, which was RM10,000 more
than the market value of the vehicle. Ken also bought furniture from Jati Sdn Bhd. It was agreed
that the company will pay Jati Sdn Bhd RM12,000 for the furniture. After the incorporation, the
company failed to make payment to Jati Sdn Bhd.

Clarke who is now a majority shareholder, has recently discovered about the transactions that
Ken had benefited from, and would like to know if any action could be taken against him.
Meanwhile Jati Sdn Bhd also wants to know its chances of success of obtaining payment for the
furniture supplied
.
Advise both Clarke and Jati Sdn Bhd.
(20 marks)

QUESTION 2
Syarikat AAA Bhd received its notice of registration in May 2019. In January 2019, Affi entered
into a contract on behalf of the company to purchase 1000 laptops from Batuq. The said laptops
are to be used for the business of the company. Batuq contracted cancer of the lungs and died
in April 2019. Thus far only 50 laptops were delivered to the company of which 20 laptops were
employed to assists in the company's daily transactions. In a general meeting in April 2019, the
company validated the contract with Affi. Further the contract executed by Batuq and Affi did not
bear the name of Syarikat AAA Bhd.
With reference to the Companies Act 2016 and decided cases, advise the company on its
liabilities, if any, pursuant to the contract to purchase laptops.
(20 marks)

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LAW649 CORPORATE LAW AND PRACTICE 1 SEMESTER MARCH-AUG 2024
TUTORIAL QUESTIONS

QUESTION 3
a) Define the term 'promoter' and explain the legal importance for the need to determine
whether a person is a promoter.
(5 marks)

b) Romi, a promoter and subsequently director of Ira Sdn Bhd, a newly formed company,
entered into a contract with Juli in March 2000 for the lease of a three storey shophouse to
be used as the company's principal place of business. Juli was under the impression that
Ira Sdn Bhd was incorporated in March 2000 when it was in fact incorporated in July 2000.
The company has decided to pay for the rental of the shophouse space beginning from July
2000 although it has been in occupation of the premises since March 2000.

Advise Juli and Ira Sdn Bhd as to their legal rights and obligations under the contract.
(15 marks)

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