FACULTY OF ACCOUNTANCY

DIPLOMA IN ACCOUNTING (AC110) MARCH - AUGUST 2024

INTRODUCTION TO PARTNERSHIP AND COMPANY LAW

LAW 346 GROUP ASSIGNMENT

PREPARED FOR : MADAM NORINTAN BINTI WAHAB

PREPARED BY :
CLASS : JAC1104E

GROUP 5

NUM. NAME STUDENT ID

1. ALEXA EDRIANNA BINTI AHMAD SAIFULLAH 2022845266

2. NUR ADZREEN DARWINA BINTI MOHD BAHYAR 2022863662

3. NURFARHANA BINTI MOHD FARID 2022482878

4. SITI HAIRUNNIESA BINTI HASZRI SHAM 2022819942

5. SYASYA NADHIRAH BINTI KAMSANI 2022485914

SUBMISSION DATE : 19 JUNE 2024

Question 5

The constitution of Happy Hour Sdn Bhd provides that “Anggerik should be the
company solicitor for life”. Farzana, the majority shareholder, has just sold her 70%
holding of shares to Malik. Malik now intends to appoint Azizah as the new company
solicitor to replace Anggerik. Anggerik, who is also a shareholder in the company, feels
very upset and seeks your advice on whether she can enforce the said constitution
against the company.

Answer:
Issue:
Whether Anggerik can enforce the said provision in the constitution against the
company?

Law:
Under the Companies Act 2016, the term Memorandum of Association and
Articles of Associations has been replaced collectively and instead the word
'constitution' has been used. Except for a company limited by guarantee, the
requirement to have a constitution is no longer mandatory.

This shows that all the power, rights, duties and obligations of the company and
each director and member are prescribed in the Companies Act 2016 unless it is
modified by the company's constitution. Which further means that the company's
constitution can modify any of those rights, power, duties and obligations only if the Act
permits it.

The constitution establishes a binding contract between the company and its
members as well as among the members themselves. Hence, they are required to
observe all of the provisions of the constitution. The effects of constitution includes:
1. Contractual effect between the company and its members.
2. Contractual effect between the members.

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 3. The constitution does not operate as a contract between a member and an
officer, or between an officer and another officer. The contract also cannot be
enforced by the outsiders.
4. The constitution is not a contract between the company and the outsiders.

As for this issue, it could be concluded that the constitution does not operate as
a contract between a member and an officer, or between an officer and another
officer. The contract also cannot be enforced by the outsider. Other than that, the
constitution also does not create a contractual relationship between the company and
other persons such as solicitors and promoters. Therefore, it cannot be enforced and
does not have a binding effect on them.

In the decided case of Eley v Positive Government Security Life Assurance

Co Ltd, the company’s articles which were drafted by Eley provided that he was to be
the company’s permanent solicitors and could only be dismissed by misconduct. He
also received some shares for the work done in forming the company. However, he
never had any employment contract with the company as their solicitor. Later on, the
company refused to employ him as their solicitor, he brought action against the
company for breaching the agreement with him dishonor of the articles. The court held
that an ‘outsider’ could not successfully sue a company to enforce rights conferred on
him by its articles of association. Therefore, Eley’s action failed.

In addition, from the case of Beattie v E & F Beattie Ltd, the article of the
company provided that in case of any dispute between members and company; it is to
be referred to arbitration. A dispute arose between the company and the defendant who
happened to be a member and a director of the company. The company sued the
defendant in his capacity as a director for the return of a certain sum of money which
was alleged to have been improperly paid by way of remuneration. The defendant
sought to stay the action by invoking the arbitration clause contained in the articles. The
court held that the defendant could not rely on the statutory contract based on the
articles because the dispute between the company and the defendant was in relation to

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a matter in his capacity as director notwithstanding the fact that the defendant
happened to be a member. The defendant was being sued in his capacity as a director
and not as a member.

Application :
Referring to the case of Eley v Positive Government Security Life Assurance Co Ltd
and Beattie v E & F Beattie Ltd, it shows that Anggerik cannot enforce the said
provision in the constitution against the company. This is because the constitution does
not operate as a contract between a member and an officer, or between an officer and
another officer. Furthermore, the contract cannot be enforced by an outsider.

Conclusion:
In conclusion, only the members of the company can be enforced by the constitution.

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QUESTION 9
Bob is a promoter of Kucing Sihat Sdn Bhd which is carrying out the business of
processing animal food. The company instructed Bob to purchase a mixing machine as
preparation for starting production. Bob had made a contract with Mesin Plus Sdn Bhd
on behalf of the company, for the purchase of a mixing machine. Mesin Plus Sdn Bhd
paid RM1000 to Bob as a commission for his assistance in getting the company’s
consent with the price of the machine offered by them. Bob did not disclose the
commission that he received to Kucing Sihat Sdn Bhd. Later Kucing Sihat Sdn Bhd
discovered the profit that Bob made from the transaction and wanted to sue Bob for the
recovery of the profit from him.

Advise Kucing Sihat Sdn Bhd.

Answer :

Issue :
Whether Bob has breached the duties as promoters?

Law :
According to Section 2(1), a promoter is a party who prepares the prospectus of the
corporation. He is a person who set up a company and set it going. According to the
case of Twycross v Grant, a promoter is a one who undertakes to form a company with
reference to a given project and set it going and who takes the necessary steps to
accomplish that purpose and case.

There are five types of promoters duties towards the companies. One of them is
where the promoter is a contracting party whether as a vendor or a purchase in a
contract entered into a company, and the fact that he is a contracting party must be
disclosed to the company.

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 According to the decided case of Habib Abdul Rahman v Abdul Cader, Abdul
Cader is a promoter for a company that purchased a piece of land from another
company. They said the land was sub divided into lots to enable it to be sold by a public
auction. However, Abdul Cader had bought the land from unknown to the company
through public auction via partnership. The shareholder of the company found out and
sought to have the purchase of land rescinded on the basic of the non disclosure.
According to Held's statement, the contract was void and the company is entitled to
recovery back the land from the promoter.

If the promoters have breached their fiduciary duties, the three types of remedies
which are available for the innocent party are as follows:
1. Right to rescind the contract
2. Rights to recover the secret profit
3. Damages for Breach of Duty or for Deceit

Based on the above issue, we can conclude that the remedies that Kucing Sihat
Sdn Bhd can claim is Damages for Breach of Duty or for Deceit. The company must
show that the promoter has in fact breached his duty or they must show that the act of
the promoters is proved to be deceitful. An example where the court awarded damages
is in the case of Re Leeds & Hanley Theatres of Varieties Ltd. where it was held that
the rescission of the contract was not possible since the music halls had been sold by
the Theatre to a third party. However, the court awarded damages for breach of the
promoter's duty.

Application :
Referring to the case Habib Abdul Rahman v Abdul Cader, it shows that Kucing Sihat
Sdn Bhd can sue Bob for recovery of the profit from him. This is because Bob did not
disclose the commission that he received to Kuching Sihat Sdn Bhd.

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Conclusion:
Promoters owe fiduciary duties to the company. This means that the promoters must
observe the following duties towards the companies.

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References

1. NORINTAN WAHAB, D. R. (2021). INTRODUCTION TO PARTNERSHIP &

COMPANY LAW LAW 346. Segamat, Johor : FARABI GLOBAL RESOURCES.