1 CRG 660 JAN 2018

SUGGESTED ANSWERS

Section A

1. Objectives of Code of Ethics of Company Secretary

• To instill professionalism among company secretaries within tenets of
morality, efficiency and administrative effectiveness √; and
• To uphold the spirit of social responsibilities and accountability in line
with the legislations, regulations and guidelines governing a company. √
(2√ X 2 = 4 marks)
2. Briefly describe two (2) types of shareholders’ meeting.

• annual general meeting – held once in every calendar year to transact the following
ordinary business: - to consider the audited accounts - to re-elect directors - to
declare dividend - to appoint auditors
• extraordinary general meeting – held between annual general meetings to transact
special business
• statutory meeting – section 142 requires a newly incorporated public company to
hold a statutory meeting within a period of not less than one month and not more
than three months after the company received its Form 23 (Certificate to commence
business). The purpose of the statutory meeting is to table the statutory report
• class meeting – holders of a class of shares which are held to consider variation of
their rights

(Any 2√ X 2 = 4 marks)

3. Section 133 of the Companies Act 1965, prohibits a limited company from giving
loans to a director. State the exceptions to the rule.

Exceptions of S.133:

i. funds provided to a director to meet expenditure incurred or to be incurred by

him for the purposes of the company or for purpose of enabling him to
perform his duties as an officer of the company. √
ii. funds given by the company to a director who is engaged in the full-time
employment of the company or its holding company to meet expenditure
incurred or to be incurred by him in purchasing or otherwise acquiring a
home. √
iii. any loan given to a director who is engaged in the full-time employment of
the company or its holding company, where the company has at a general
meeting approved of a scheme for the making of loans to employees of
the company and the loan is in accordance with that scheme. √
iv. if the person is a director of an exempt private company √
(4√ x 1 =4 marks)

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4. Briefly explain the functions of an “independent non-executive director”.

An independent non-executive director is expected to play the following roles:

i) to help identify the right strategy that will improve shareholders’ value;
ii) to balance up board structure and
iii)to give independent view and judgement in the board decision making process;
iv) to act as a “watchdog” and to monitor board processes.

5. Sec 18(1) provides that MOA must contain the following clauses:

a. The name clause√

b. The objects clause √
c. The capital clause√
d. The limited liability clause√
e. The subscribers clause√
f. Registered office clause√
(Any 4√ x 1 = 4 marks)

6. Halim is a director of Zifron Sdn Bhd and he was informed that his brother Halil is a
connected person to him under the provision of section 122A of the Companies Act
1965. Briefly explain to Halim the persons deemed to be connected with a director
under section 122A of the Companies Act, 1965.

Under Section 122A of the Act, a person shall be deemed to be connected with a
director if he is:

a) a member of the director’s family i.e. the spouse, parent, child (including adopted
child or step child), brother, sister and the spouse of his child (i.e, son-in-law or
daughter-in-law) and spouse of his brother or sister (sister-in-law or brother-in-law) √

b) a body corporate which is associated with the director, that is: √

i) if the body corporate is accustomed or is under an obligation, formal or informal,
to act in accordance with the directions, instructions and wishes of that director
(e.g. chairman or advisor)

ii) if the director is also a director of that body corporate

iii) if the director and/or persons connected with him are entitled to exercise or
control the exercise of more than 15% or the total voting rights in the body
corporate.

iv) if the director has a controlling interest in the body corporate

c) a trustee of a trust under which the director or a member of his family is a

beneficiary√

d) a partner of the director or a partner of a person deemed connected with the

director. √
(4√ x 1 = 4 marks)

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7. Briefly discuss the characteristics of an exempt private company and its exemptions.

The characteristics of an exempt private limited company are:

• must not have more than twenty members √
• the shares must not be owned directly or indirectly by a corporation√

An exempt private company is exempted from:

• submitting its financial statements with its annual return with CCM √
• restriction on loans to directors and persons connected to directors under
section 133 and section 133A of the Act. √

(4√ x 1 = 4 marks)

8. State the circumstances where a person may be disqualified to act as secretary of a

company.

Under Section 139C of the Act, a person is disqualified to act as a secretary if:

a) he is an undischarged bankrupt; √

b) he is convicted, within or outside Malaysia of: i) any offence in connection with

the promotion, formation or management of a corporation ii) any offence
involving fraud or dishonesty punishable on conviction with imprisonment for
three months or more iii) any offence involving dishonesty and lack of
reasonable diligence in the discharge of his duties iv) insider trading v) any
offences in which proper company accounts are not kept √

c) he ceases to be a member of the professional body prescribed by the Minister

under Section 139A of the Act√

d) he ceases to be a holder of a valid license issued under Section 139B of the

Act (b) Starlight Berhad issued dividend warrants√
(4√ x 1 = 4 marks)

9. Disadvantages of going public of companies:

• Tedious and expensive listing costs – substantial cost will incur for the
application for listing, consultation of merchant bankers, cost for printing of
prospectus and the listing fees. √
• Loss of privacy – every listed company to make available to the public
information necessary to make informed investment decisions for them to
enjoy equal access to the information. √
• Risk of eventual dilution of control – the entrepreneurial or family concern
will have to be shared with the shareholders at large and directors will have to
share control of the company. √
• Accountability to the public – greater responsibility in promoting share
performance and ensuring better return on investment by way of dividend. √
• Disclosure requirements – the investors have to be informed the company’s
performance through bi-annual press release or annual reports, AGM and
EGM. √
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• Volatility – when the market is volatile, the share price could fluctuate
considerably and will affect the company’s value. √
(Any 4√ x 1= 4 marks)

5. Agree. √√
• A member of a company
▪ must hold shares, √
▪ be a subscriber to memorandum and articles of association of the
company, and √
▪ his or her name must be included in Register of Member of the
company. √
• A shareholder
▪ Are person only hold shares of the company, √
▪ but not necessarily be a subscriber to memorandum and articles of
association of the company, √
▪ his or her name is not included in Register of Member of the company.
√
(8√ x 0.5 = 4 marks)

(Total: 40 marks)

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SECTION B

QUESTION 1

NS Dairy Products Sdn Bhd was incorporated on 10 June 2012 with the purpose of
importing and exporting dairy products. The company’s first Annual General Meeting was
held on 1 August 2013. It was agreed that subsequent annual general meeting would be
held on 1 August each year. The agenda for the Annual General Meeting includes both
ordinary business and special business.

Required:

a) Describe the four (4) ordinary business that would be transacted at an Annual
General Meeting.
(4 marks)

b) Discuss the duties of a company secretary DURING an Annual General Meeting.

(6 marks)

c) Explain the provision of section 169 and section 143 of the Companies Act 1965 in
relation to tabling audited accounts at an Annual General Meeting.
(6 marks)

d) Explain the circumstances where an ordinary resolution would require a special

majority for the resolution to be passed.
(4 marks)
(Total: 20 marks)

ANSWER 1

a) Ordinary Business in AGM

• The consideration of the accounts, balance sheet and the reports of
the directors and auditors. √
• Declaring a dividend as recommended by the directors. √
• Re-election of directors. √
• Appointment and fixing of the remuneration of auditors. √
(4√ x 1 mark = 4 marks)

b) Company Secretary’s Duties During Annual General Meeting

• To ensure that the directors are properly seated √
• To check for a quorum √
• To read the notice of the meeting when instructed by the chairman √
• To note the names of those members asking questions √
• To assist the chairman in the counting of votes √
• If the polling documentation has been arranged, the secretary will advise
the chairman that it should be taken immediately √
• To ensure the chairman give the vote of thanks at the closure of the
meeting √
(Any 6√ x 1 = 6 marks)

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c) Section 169 of the Companies Act 1965

• requires company to table its audited accounts at an AGM √ not later
than 6 months after the company’s financial year end. √
• there is no legal requirement either in the CA 1965 or in the Articles that
requires the audited accounts to be adopted by the company in
general meeting
• The purpose for which the audited accounts are to be tabled before AGM
is for the shareholders to seek clarification from the board of
directors on any matters pertaining to the audited accounts and not
for the shareholders to approve or adopt the accounts. √
• Where any adjustment proposed in the meeting was not approved,
the audited accounts for the year would not be amended but an
adjustment shall be made in the accounts of the following year.

Section 143 – require a company to hold its AGM once in a year. √ The first
AGM is to be held not more than 18 months √while the subsequent AGM is to
be held not more than 15 months. √

(6√ x 1 mark = 6 marks)

d) Circumstances where special majority is required to pass as an ordinary resolution.

• Appointment of a director of a public company who have attained
the age of 70 (s.129) √
• Appointment of another person to fill the casual vacancy created by
the removal of the company’s auditor (s.172) √
(2√ x 2 mark = 4 marks)
(Total: 20 marks)

QUESTION 2

The board of directors of Acquamarina Bhd has informed you that the company is facing
serious financial difficulty as a result of poor sales. They are of the opinion that the company
is no longer able to continue the business as the amount of debt is several times greater
than its assets. Business operation under the current condition would be meaningless as it
would result in bigger losses and greater debts. Jaya Credit Services, one of the main
creditors of Acquamarina Bhd has put up a petition to the court in order to recover its debt.
The Chairman of Acquamarina Bhd has consulted you, as the company secretary, to explain
to the Board of Directors regarding the following:

a) Five (5) reasons that make a company fall under compulsory winding up by virtue of
section 218 of the Companies Act 1965.
(5 marks)

b) Procedures for a compulsory winding up by the Court.

(10 marks)

c) The date of commencement for compulsory winding up and the effective date of the
dissolution of the company.
(2 marks)

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d) Functions of the committee of inspection.

(3 marks)
(Total: 20 marks)

ANSWER 2

a) Under section 218 of the Act, court may wind up a company on any of the following
grounds:

(i) Default in holding a statutory meeting and failing to lodge the statutory
report. √
(ii) The company fails to commence business within 1 year from
incorporation or suspends business for more than a year. √
(iii) The membership of the company (except for a wholly owned subsidiary) is
below 2. √
(iv) The company is unable to pay its debt. √
(v) The directors have acted in their own interests rather than in the interests
of the members as a whole, or in any other manner which appears to be
unfair to other members. √
(vi) Based on the inspector’s report √ of which he is of the opinion:
a) That the company cannot pay its debts √ and
b) That in the interests of the public or the shareholders or the
creditors that the company should be wound up. √
(vii) The court is of the opinion that it is just and equitable that the company
be wound up √ under any of the following circumstances:
a) Where the main object of the company has failed √
b) Where there was a deadlock in the management √
c) Where the company was formed for a fraudulent purpose √
d) Where the company was a bubble company √
e) Where a director had voting control and refuse to hold meeting,
procure accounts or pay dividends √
(viii) The company has held a license under the Banking Act 1973 and that
license has been revoked, expired and has not been renewed.
(Any 5√ x 1 = 5 marks)

b) Procedure for compulsory winding up:

(i) Presentation of the petition by the company√ (special resolution
required), creditors, contributories, the Official Receiver, the liquidator, the
Minister of Trade and Industry or Bank Negara.
(ii) Hearing by the court√ at which the winding up order is made.
(iii) Separate meetings of the company and creditors summoned by the
liquidator√ to decide whether or not to appoint a Committee of
Inspection√ to act with the liquidator. If there is no liquidator appointed,
the Official Receiver must summon separate meetings of the
creditors and contributories√ for the purpose of determining whether or
not to apply to court for appointment of a liquidator to replace the
Official Receiver√.
(iv) Liquidator files notice of his appointment on Form 70 with the CCM and
the Official Receiver√ within 14 days from the date of his
appointment√.

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(v) Liquidator continues with the duties of winding up which will involve calling
meetings of the Committee of Inspection√.
(vi) Liquidator distributes assets in correct legal order√.
(vii) Liquidator applies to the court for an order for his release and that the
company be dissolved√.
(Any 10√ x 1 = 10 marks)

c) Commencement of winding up – at the time of the presentation of the petition√

Deemed to be dissolved – on the expiration of three months after the lodgment
of Form 69 with the CCM √
(2√ x 1 = 2 marks)

d) Functions of Committee of Inspection

• To appoint liquidator. √
• To assist and supervise the acts of the liquidator. √
• To act in fiduciary position. √
(3√ x = 3 marks)
(Total: 20 marks)

QUESTION 3

Intradco Development Sdn Bhd (Intradco) was incorporated in August 2000. The company
has secured a project to construct an iconic 3rd bridge linking Jurong Industrial Park,
Singapore and Pasir Gudang, Johor. The company plans to finance the project worth RM55
million, through a private financing initiative.

Datuk Albert Lau, the Finance Director of the company was responsible to prepare a
proposal on the strategic plans. The company then convened a board of directors meeting to
discuss on the proposed strategic plans with regard to the funds required to finance the
project.
• Plan A – That the company converts into a public company. A public company may
raise funds from the public at large by issuing securities in the form of ordinary
shares.
• Plan B – That the company issue mortgage debentures to a local bank. The
company may charge one of its multi-storey buildings located in the Klang Valley as
a security to secure the loan by way of fixed charge.

Tan Sri Ong See Kit, the Chairman of the company, seeks your explanation on matters
regarding shares and debentures. As a company secretary, advise Tan Sri Ong See Kit and
the other board members on the proceedings of the meeting.

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Required:

a. Issuance of shares may take several forms or methods. Therefore if Plan A is to be

considered,

i) explain three (3) methods by which a public company can issue shares to the
public.
(9 marks)

ii) briefly explain the term underwriting arrangement.

(3 marks)

b. Instead of using Plan A, the board decides to use Plan B which is to issue mortgage
debentures to a local bank and pledge the multi-storey building as security for the loan.

i) Advise the board on the circumstances in which an issuance of mortgage

debentures is preferred than the issuance of new shares.
(6 marks)

ii) Describe the characteristics of a fixed charge

(2 marks)

(Total: 20 marks)

ANSWER 3

a. If Plan A is to be considered:

(i) Three methods by which a public company can issue shares to the public are as follows:

• Public issue – a direct allotment, where the shares are issued and allotted directly to
members of the public who have subscribed for the shares. √ √ √

• Offer for Sale – Two scenarios: √√√

1. Where a private company seeks to go public, a portion of their shares held by
the existing shareholders may be offered for purchase by members of the
public.
2. A company allots or place shares to an issuing house which then will offer
them for sale to the public.
• Rights Issue – an offer (in the contractual sense) to the existing members of a
corporation of new shares for subscription. √√√

(ii) Underwriting arrangement

It is an arrangement for a firm (the managing underwriter) to subscribe or procure

subscription for the shares to be issued in consideration for a commission to be paid by the
company. √ It is not a statutory requirement for the issue of shares to be underwritten, but for
companies with shares listed on the Bursa Malaysia or seeking quotation on the Bursa
Malaysia, they are required to have the issue underwritten to ensure the company will get
the required funds it intends to raise by the public issue or offer for sale. √ √
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(b)

(i) The time when Plan B (issuance of mortgage debentures) is preferred rather than Plan A
(Offer for Sale):

i) When Intradco wishes to obtain additional capital for investments but existing
shareholders do not wish to lose control of company. The issuance of new ordinary
shares would confer the shareholders full right of voting and thereby the shareholder
will be able to participate in the running of the company. √√

For the issuance of debentures to SBB, the holders of the debentures does not have
rights to vote at a general meeting hence holders have no special ability to exercise
control and participate in the running of the company.

ii) When Intradco wishes to obtain additional capital for investments but existing
shareholders do not wish their existing shares to be diluted. The issuance of
debentures with no rights for conversion into equity shares on maturity would help
Intradco to achieve its objective to secure adequate financing while conserving the
shareholders’ rights (no dilution of shareholders’ shareholding). √√

iii) When Intradco wishes to obtain additional capital for investments but existing
shareholders want their exposure to be quantified and no sharing of future profits.
The interest payable on the debentures is usually fixed on issuance, though normally
higher than the prevailing interest rate to attract takers. Intradco would be able to
calculate and know the total amount of interest to be paid on borrowings. In addition,
when Intradco made handsome profits such profits need not be shared as in the case
for issuance of ordinary shares where all shareholders would be entitled to dividend if
a dividend is declared on the shares. √√
(3 points + explanations = 6 marks)

(ii) Characteristics of a Fixed Charge:

• The charge sticks to the particular asset, until the charge is satisfied. If the asset is
transferred, the charge follows it √
• The company is not at liberty to deal with the charged assets. √
(2 √ = 2 marks)
(20 marks)

END OF SOLUTION

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