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Summary of the Question

Object clause Mirza Sdn Bhd - To engage in the manufacturing and marketing of
organic fertilizers.
Question :

The director of the company decide to diversity the activity of company to


open up a cattle breeding centre.
The company purchase of a piece of land from George. (RM 2 million)
Contract was concluded between company and George.
The company has not yet performed its obligation.

(c) Advise Kamarul as to whether he can take legal action to prevent the company
from setting up the cattle breeding centre as it is not within the object of the
company.
Answers :
Issue arise whether Kamarul can take legal action to prevent the company from
setting up the cattle breeding centre as it is not within the object of the company.
Decision to setting up breeding centre is ultra vires and will void ab initio because its
does not comply with the object of the company which is object of the company is
to engage in the manufacturing and marketing of organic fertilizers.
On the other hand under section 20(1), states that No act or purported act of a
company shall be invalid by reason only of the fact that the company was without
capacity or power to do the act or to execute or take the conveyance or transfer.
This means that a completed ultra vires transaction is valid even though the
company has no capacity or power to enter into such transaction. Example case
related under this section was Howkesbury Development Co. Ltd vs Landmark
Finance Pty Ltd where Hawkesbury held all shares in LF. LF had given two
mortgage debentures to UDC. Hawkesbury sought a declaration that the debentures
were void on the ground of ultra vires and also sought an injunction restraining UDC
from enforcing the debentures. Hawkesburys application failed as the relief must be
established against his company, not the third party (UDC).
Unfortunetly, the company (Mirza Sdn Bhd) has not yet performed its obligations
under that contract, so Kamarul can take legal action by using section 20(2)(a) to be
read together with section 20(3). Section 20(2)(a) states that any member or a
debenture holder by a floating charge (or his trustee) may restrain an ultra vires act
by a company before it is fully performed . Together with section 20(3) clarify that If
an authorized act conveyance or transfer sought to be restrained in any proceedings
under sebsection 20(2)(a) is being or is to be performed or made pursuant to any
contract to which the company is a party, compensation for the loss or damage
sustained by either them which means any ultra vires transaction that not yet fully
performed can be charged under this act along with the compensation or damage of
loss as already stated in this subsection.

In Foss vs Harbottle (1843), the property of the company had been misapplied and
various mortgages were given improperly over the companys property. Annual
general meeting was held to decided action that will takes place and the result no
action should be taken against them. Court dismissed the claim for reason the
proper plaintiff rule is that a wrong done to the company may be vindicated by the
company alone. Corporation itself has separate legal entity. Another reason is the
majority rule principle that states if the alleged wrong can be confirmed or ratified by
a simple majority of members in a general meeting, then the court will not interfere.
In the proceeding against the present or former officers of the company section
20(2)(b) a company or any of its members can raise the issue of ultra vires against
the officers of the company. It states the company or any member of the company
can restrain a present officer or former officer of the company from acting in a
manner not authorized by the MOA. A members may use the doctrine to take up
action to restrains an officer of the company but not to the director or officer in his
own capacity because a member has no personal capacity to sue director by virtue
of the proper plaintiff rule. Kamarul (member) may use any doctrine to take up action
to restrain the director from causing the company to act in a manner in which is
beyond its capacity by using the virtue of the proper plaintiff rule. Conclusion can be
made for Kamarul is that he can take legal action towards a company from setting up
the cattle breeding.