Group 8

Assignment Law 346

MOHAMAD FAIZ BIN MOHAMAD
MUHAMMAD IZZUDDIN BIN AYUB
MUHAAMD AKIRA BIN PAUZI

Question
Anand, Bakri, and Chan are the directors of ABCD Sdn Bhd, a company dealing in the import and sale of
foreign carpets. They are also its majority shareholders, each holding 20% of its issued shares. The
remaining shares are held by a few persons, one of whom is David, who approaches you for advice. He says:

In January 2004, there was speculation that there was likely to be a takeover of ABCD Sdn Bhd by another
company, Predator Bhd. In order to ward off such a takeover, the directors, pursuant to a board meeting,
issued new shares to Ali, the trustee for employees under the companys employee share scheme, on the
understanding that Ali would vote against any potential takeover of the company.

In April 2004, the company purchased a piece of land from Tanahku Sdn Bhd for RM500,000. It has now
come to light that the only shareholders and directors of Tanahku Sdn Bhd are Anand, Bakri and Chan.

Last month, Anand and Bakri went to Nigeria and successfully negotiated a two million ringgit contract on
behalf of ABCD Sdn Bhd. I have just discovered that the directors have transferred the benefit of the
contract to a company called Kleen Deals Sdn Bhd, whose only directors and shareholders are Anand,
Bakri and Chan.

Advise David and the company whether there has been any breach of duty to the company by the directors
in respect of the aforementioned matters as well as the consequences of such breach.

Issue

Whether Anand, Bakri , & Chan has breach of

duty as director to the company ABCD Sdn Bhd ?

Definition of Director

A director is an officer of a company within the meaning of

this section
Section 4(1) of company Director as including :
Any person occupying the position of director of a corporation by
whatever name called
A person in accordance with whose directions or instructions the
directors of a corporation are accustomed to act
An alternate or substitute directors

Duties and Liabilities of

Director
a)Common law duties
b)Statutory duties of directors

a) Common law
a) Fiduciary duty
A fiduciary is someone who is in control of property in which
others have an interest or is given power powers for which is
exercised on behalf of those in position of dependence

Section 132(1) of CA state that a director shall at all times act

honestly and use reasonable diligence in the discharge of the
discharge of the duties of his office. The word honestly used here
is the basis for deciding cases relating to directors fiduciary

 As a fiduciary , a director duties are

To exercise his powers for the proper purposes,
and not for any collateral purpose
To avoid any conflict of interest between his duty
to the company and his personal interest

Issue:
Whether the act of directors issue new share to Ali is exercise their duty
to act for a proper purpose?

Duty to act for a proper purpose

The power given to the directors must be exercised only for the benefits
of the company.

The court will consider 2 factors when it has to decide whether the
directors power has been exercised for a proper purpose or not
The objective for which the power was granted
The main purpose for which the power was excercised

The related case Howard Smith LTD v. Ampol

Petroleum LTD

Issue:
Whether the act of silent from Anand, Bakri, and Chan as the director and
shareholder of Tanahku Sdn Bhd is valid the transaction of purchase the land?

Duty to avoid any conflicts of interest

Directors must not put themselves in a position in which their
duty and their personal interest may conflict
a) Director enters into a contract with his company, without
disclosing the fact that he is the party at interest
S. 131(1) of CA provides that directors must disclose all material facts to the
shareholders.

~The related case Aberdeen Railway Co v. Blaikie Bros

Issue:
Whether the director can use their position to obtain personal
benefit?

Use his position as a director to obtain personal

benefit
A director is under a duty not to make use of hisposition
as a director to obtain a profit to himself.
The director can breach of duty if him take advantages to
make the secret profit with his position as a director of the
company.
~The related case Furs Ltd v. Tomkies

Conclusion
As a conclusion,Anand,Bakri and Chan had breach of
duty to the company because them had make some
offence to the their duties.First,them act for proper
purpose.They had issued new shares to third party
(Ali)to act on their behalf to protect the company
from takeover by outsider(Predator Bhd).Second,they
did not disclose to the company that they are the
shareholders and director for Tanahku Sdn
Bhd.Lastly,they use their position as a director to
make others profit from the company contract
whereby they transferred the benefit of contract to