CONFIDENTIAL JUNE 2020/SET A/LAW303

FINAL EXAMINATION
BACHELOR OF CORPORATE ADMINISTRATION (HONS)

COURSE : CORPORATE LAW

COURSE CODE : LAW303

DURATION : 3 HOURS

INSTRUCTIONS TO CANDIDATES :

1. This question paper consists of TWO (2) parts : PART A (4 questions)

: PART B (3 questions)

2. Answer ALL questions from PART A and PART B.

MYKAD/
PASSPORT NO : 970815145305
ID. NO. : AM1809004713
LECTURER : Mdm Nur Yuhanis Ismon
SECTION :

DO NOT OPEN THIS QUESTION PAPER UNTIL YOU ARE TOLD TO DO SO

This question paper consists of 3 printed pages including the front page

CONFIDENTIAL
CONFIDENTIAL JUNE 2020/SET A/LAW303

PART A : STRUCTURED

Answer ALL questions.

1. The doctrine of capital maintenance is to emphasize on a fundamental duty of

the companies to keep the capital intact for the safety of the creditors. However,
the Companies Act 2016 (CA) has prescribed some exceptions to this general
principle. Explain what is the doctrine of capital maintenance and its exceptions.

The doctrine of capital maintenance is to protect the interest of creditors. It assures the
interest of creditors as it assures the creditors who has given credit to the company that
the company's paid up capital will be a creditors' reserve. Based on common law, a
limited shall not returned their capital to its member unless stated by Companies Act
2016 (CA) prescribed the exception which is:

i. Reduction of Capital
Capital may be reduced by 2 ways which is by special resolution and
confirmation by the court as accordance to the Section 116 of Companies Act
2016. The second situation is by special resolution supported by a solvency
statement accordance to Section 117 of CA 2016.

ii. Share Buyback

As stated in Section 127 (1), it is permitted a public companies with a share to
purchase its own shares as listed in It have been explained in the Section 127
(1) until Section 127 (4) of Companies Act 2016

iii. Financial assistance

As stated in Section 123, it also does not permit a company to give any financial
assistance for the purchase of its own shares or that of its holding company.
Therefore, there are exception prescribed in Section 125 and Section 126
namely subsection 1 where the lending of money is part of the company’s
ordinary business; (2) where it is for a trust scheme for employees; (3) where
the financial assistance is given to employees for their own benefit; (4) where
the company is regulated by written laws relating to a bank, insurance or which
are subject to the supervision of the Securities Commission; or (5) where the
company is not a public listed company and it has complied with the conditions
listed in Section 126.

iv. Dividend
In the Company Act 2016, the dividend rule is found in Section 131. It has two
principles – i.e. (1) the dividend is to be paid out of the company’s profits; and
(2) the dividend should not be paid if the payment will cause the company to be
insolvent. As the directors are the ones who authorize the payment of
dividends, they must be satisfied that the company will be solvent after the
distribution is made.

Section 133(2) provides for the liability of the director and manager who willfully
paid or permitted to be paid dividends out of what they knew to be not profit.
They are liable to the company to the extent of the amount exceeding the value
of any distribution of dividends that could properly have been made.

2 CONFIDENTIAL
CONFIDENTIAL JUNE 2020/SET A/LAW303
The Company Act 2016 also prescribes the new liability imposed on the
member. Section 133(1) states that the company may recover the amount of
distribution received by a shareholder which exceeds the amount which could
properly have been made unless the shareholder (1) has received the
distribution in good faith; and (2) has no knowledge that the company did not
satisfy the solvency test.
(10 marks)

2. An application of variation of class rights is an alteration in the position of shareholders

with regard to the rights or duties which they have of their shares. Nevertheless, the
application may be refused. Explain the procedures to be taken in order to refuse the
application of variation of class rights.

Under section 93(1), if the rights attached to shares in any class of shares in a
company are varied, the shareholders representing at least ten per centum of the total
voting rights in the class may apply to the Court to have the variation disallowed.

Under section 93(2), an application under subsection (1) paragraph a shall be made
within thirty days from the date on which the variation is made; and paragraph b, may
be made on behalf of the shareholders by any shareholder appointed in writing by all
shareholders in that class.

Under section 93(3) The Court shall, upon hearing of the application made under
subsection (1), make the following order in paragraph a, if the Court is satisfied that the
variation would unfairly prejudice the shareholders represented by the applicant,
disallow the variation; or paragraph b, if the Court is satisfied that the variation would
not unfairly prejudice the shareholders, confirm the variation.
(10 marks)

3. Section 2 of the Companies Act 2016 define “charge” which includes a mortgage and
any agreement to give or execute a charge or mortgage whether upon demand
or otherwise. Explain the differences between fixed charge and floating charge and
support your answer with decided case.

FIXED CHARGE
Fixed charge attaches to a specific property owned by the borrower. The charge grants
the holder the right of enforcement against the identified asset in the event of default in
repayment or some other matter) so that the creditor may realize the asset to meet the
debt owed. Due to nature of a fixed charge, the company is unable to dispose of the
charges assets without the lender's consent: Siebe Gorman & Co Ltd v Barclays Bank
Ltd.

FLOATING CHARGE

A floating has been defined in Re Yorkshire Woolcombers Association Ltd 1903 a

charge on a class of assets of a company present and future which class is, in the
ordinary course of the company's business, changing from time to time and until the
holders enforce the charge, the company may carry on business and deal with the
assets charged.

Floating charges are charges which float above specific categories of assets such as
its inventory. The company is free to dispose of these assets in the normal course of
3 CONFIDENTIAL
CONFIDENTIAL JUNE 2020/SET A/LAW303
business and to replace them by acquiring the same category of assets in the future. A
floating charge can crystallise and become, a fixed charge over the assets of the
company

R in Right of British Columbia v Federal Business Development Bank 1988 cases facts
is in the Canadian case the bank had a charge over the company's entire property
expressed as a fixed and specific mortgage and charge. Another term allowed the
company to continue making sales from stock in the ordinary course of in writing by the
bank to stop doing so business until notified. The court held the charge was created as
a floating, not a fixed charges.
(10 marks)

4. “The company secretary is regarded to be the company’s chief administrative officer”

Based on above statement, describe what is the role of a company secretary and
support your answer with the relevant cases.

Responsibilities are imposed by the Act, the constitution or the appointing BOD.
Secretaries were initially regarded as persons of low status and authority in the
company. Nowadays the co secretary is regarded to be the company's chief
administrative officer: Panorama Developments (Guildford) Ltd v Fidelis Furnishing
Fabrics Ltd. A company secretary exceeded his actual authority in hiring motor
vehicles from plaintiff. The court had to decide whether the defendant company could
be taken to have authorised the transaction. It was held that the defendant company
was liable because in appointing a company secretary, the defendant company was
representing that the secretary so appointed had authority to enter into these
transactions with which company secretaries were usually concerned. The hiring of
motor vehicles was part of company administration.

Another cases is Mohamed bin Othman & Anor v Abdul Shatter bin Abdul Rahim &
Ors. Company secretary is an administrative officer and his functions is to give effect
to the decisions of BOD by drafting and signing contracts and other administrative
matters. He has no power to make commercial decisions on the company's behalf
and he acts outside his authority if he borrows money in the company's name or
negotiates contracts on its behalf.
(10 marks)

(TOTAL : 40 MARKS)

4 CONFIDENTIAL
CONFIDENTIAL JUNE 2020/SET A/LAW303

PART B : ESSAY

Answer ALL questions.

1. Mr. David, at all material times the chairman and executive director of CBG
Enterprises Sdn. Bhd. The company held a meeting on 31 January 2019 and as a
result, an ordinary resolution with special notice was passed to ceases Mr. David as
the chairman and executive director of CBG Enterprises Sdn. Bhd. Simultaneously,
the company appointed Mr. William who is previously foreign investor and live in
Scotland to be a new director to replace Mr. David’s position.

Discuss whether Mr. David’s removal by way of ordinary resolution is valid and advice
Mr. William on his appointment as a new director of the company.

Law:
The definition of directors is words it is stated in section 2 of Companies Act 2016, it is a
person from a group of managers who leads or supervises a particular area of a
company. This also includes the CEO, chief financial officer, chief operating officer and
other who specifically responsible on the management of the company. In this question
will focus on the removal of a director. The removal of a director may be divided into 2
situation which private companies and public companies. However, in this present case
will focus on the removal of director in a private company.

In the private company, by virtue of section 206(1)(a) read together with section 206(3)
stated that subject to the constitution of the company, a director may be removed by
ordinary resolution and special notice is required. This mean that a company has the
authority to remove director by passing an ordinary resolution meaning that in the
general meeting require a simple majority vote which above 50 percent of shareholders
votes to be passed. However there are private companies that adopt various other way
to remove a director. In the case of Solaiappan v Lim Yoke Fan, to pass an ordinary
resolution, special notice is required before a director can be removed from the
company

Moving forward to the next step is whether the appointment of Mr William to be the new
director is valid or valid? The qualification to be a director are listed in section 196 and a
person need to fulfilled all the requirement in order to be qualified as a director of the
private company. In section 196(2) a natural person who is more than 18 years old
196(1) shall have minimum of one director, 196(4) a Malaysia and not having substitute
director should not an undischarged bankrupt and does not convicted any offences
within or outside Malaysia. In the case of Fob Pob Yoke v The Central Construction
Company (Malaysia) Sdn Bhd, illustrates the requirement of being resident in Malaysia
for the office of a director The court held that the term residence connotes residence in
one place with some degree of continuity and the person who resides in other place
besides Malaysia would not entitled to claim residency in Malaysia.

Application:
In this situation, by focusing on the first issue, Mr David is the director of CBD
Enterprises Sdn Bhd and it is a private company thus in removing the director under
section 206(1)(a) is valid.

5 CONFIDENTIAL
CONFIDENTIAL JUNE 2020/SET A/LAW303
(20 marks)

2. Asian Bank had a capital of RM24,000 in 2400 shares of RM10 each, of which RM5
was paid and the other RM5 has not to be called up except in the event of and for the
purposes of the company being wound up. The company had been in existence for six
years, but had never made any profit, and its business, which had commenced
with a considerable staff in extensive premises, was now being carried on in
small premises, attended by a single clerk. From the last balance-sheet of the
company it
appeared that all the paid-up capital except RM337 had been exhausted.
Advise Asian Bank on the ground of winding up.

Law:
The liquidation is the process by which its assets are collected, its debts paid and the
surplus (if any) distributed among its members. Until this process is completed, the
company remains in existence as a legal entity. Under section 432(1)(b), modes of
winding up by way of a voluntary winding up. Under Section 432(2)(a), company is
solvent. Liquidator is appointed by the members at the members meeting.

Under Section 432(2)(b), company is insolvent. Liquidator is appointed by the creditors

at the creditors' meeting. Under Section 443(1), written declaration from the director or
the majority of the directors that the company was solvent and will be able to pay its
debts in full within 12 months after the commencement of the winding up and under
Section 444, creditor voluntary winding up where declaration of solvency by the
directors.

Under Section 439(1)(a), when at the period fixed for the duration of the company by the
constitution or the event if any occurs of which the constitution provides that the
company in general meeting has passed a resolution requiring the company to be
wound up; or paragraph b, if any company so resolve by special resolution.

Under Section 465(1)(a) the company has by special resolution resolved that it be
wound up by the Court; paragraph b, default is made by the company in lodging the
statutory declaration; paragraph c, the company does not commence business within a
year from its incorporation or suspends its business for a whole year;paragraph d, the
company has no member;paragraph e, the company is unable to pay its debts;
paragraph f, the directors have acted in the affairs of the company in their own interests
rather than in the interests of the members as a whole, or in any other manner
whatsoever which appears to be unfair or unjust to other members; paragraph g, when
the period fixed by the constitution expires or event occurs that the company is to be
dissolved and paragraph h, the court is of opinion that it is just and equitable that the
company be wound up.

The most obvious and common reason is that the company is insolvent i.e. unable to
pay its debt and it is just and equitable to wind up the company. In such cases,
liquidation is the process whereby the company’s assets are realized and distributed to
creditors in payment of the debts due to them.

Application:
6 CONFIDENTIAL
CONFIDENTIAL JUNE 2020/SET A/LAW303
Asian bank may consider the above law for the winding up because it need to winding
up. There is no profit to gain.

(20 Marks)

3. Mr. Hady had transferred RM620,000.00 to Mr. Mirza for the purpose of using
the money to bet on share price movements using advance insider information which
Mr. Mirza expected to obtain. The expected insider information was not forthcoming
and the agreement was frustrated. Mr. Hady sought for restitution of the money paid
on the ground that Mr. Mirza had been unjustly enriched and the basis upon which the
money was paid had failed. Mr. Mirza refused to pay on the ground that the
agreement was tainted by illegality.
Discuss whether it could be consider as insider dealing.
(20 marks)

(TOTAL : 60 MARKS)

END OF QUESTION PAPER

7 CONFIDENTIAL