GLUP3153

COMPANY LAW & CORPORATE GOVERNANCE I

A211 GROUP A

ASSIGNMENT III

GROUP 1

NAME MATRIC NUMBER

NUR FITRAH BINTI AZAMAN 272633

NUR AMIRA BINTI RAZI 272687

SUREKHA VARUGHESE 272997

AFIFAH BINTI AHMAD NIZA 273053

NUR NADIA SYUHADA BINTI ROSLI 273118

KOTHAI SUNTHRARAJU 273805

LECTURER: NOR HAYATI BINTI ABDUL SAMAT

SUBMISSION DATE: 27 JANUARY 2022
1.0 REQUEST MEMO

CAHAYA INDAH SDN BHD

MEMO

Date : 6 December 2021

To : Surekha & Co.
From : Board of Directors
Subject : Request for Advice

Dear Sirs.

PLEASE BE INFORMED that in the Board Meeting held yesterday, we have decided to take
several actions for the Company. Attached together with, list of the proposed action plans to be
carried out by the Company for your reference.

Please advise us on the legal position of the proposals and if permissible by the law, steps to be
taken in implementing those proposals. Thank you.

Best regards.

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2.0 REPLY MEMO

SUREKHA & CO.

MEMO

Date : 7 December 2021

To : Board of Directors of Cahaya Indah Sdn Bhd
From : Surekha & Co.
Subject : Reply on Request for Advice

Dear Sirs.

We have received your company’s memo regarding a list of proposed actions to be taken by
Cahaya Indah Sdn Bhd and your request for our opinion on those matters.

Below is our advice on the legal position of the proposals and steps to be taken in implementing
those proposals.

OPINION ON PROPOSAL 1

a) Share capital is divided into different classes

In regard to the first proposal to adopt four provisions in your own company’s constitution,
you should consider some rules provided in the Companies Act 2016 (hereafter referred to as CA
2016). The first proposed provision is that your company wants to divide the share capital into
different classes. Section 90 of the CA 2016 provides for description of shares of different classes.

The money your company raises by issuing ordinary or preferred shares is referred to as
share capital. With further public offerings, your company's share capital or equity funding might
alter over time. According to Section 105 of the CA 2016, a member's share or other interest in a
corporation is personal property and transferable. Section 74 of the CA 2016 stated that 'All shares
issued before or after the start of this Act shall have no par or nominal value'. Ordinary shares and

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preference shares are the two types of shares that may be found in general. 'Preference shares' are
defined in Section 2(1) of the CA 2016 as any share, regardless of name, that does not entitle the
holder to vote on a resolution or to any right to participate in any distribution above a predetermined
amount, whether by way of dividend, redemption, winding up, or otherwise. If your company's
constitution specifies a mechanism for class rights modification, such procedure must be followed
Section 91(1)(a) of the CA 2016. If your company's constitution does not specify the method, it
may do so with the permission of the class's shareholders according to Section 91(1)(b) of the CA
2016. In Commonwealth Homes & Investment Co Ltd v Smith (per Dixon J) [1937] HCA 73, it
was held that a 'allotment' of shares had a twofold meaning. It may be the acceptance of the offer
made by the applicant, or the making or authorisation of an offer or counter-offer accepted by the
allottee's subsequent acquiescence in the establishment of a membership contract. However, it also
refers to the allotment of a specific number of shares to the allottee. The issuance of shares, which
is regarded as a form of property, consists of the following facts such as allotment, inclusion in the
share register, and the sealing and distribution of share certificates.

As to Section 11(1) of the CA 2016 which states that a company limited by shares can be
either in the form of private or public company, your company may include this into your
constitution. If your company has several classes of shares, you must disclose prominently in its
constitution that the company's share capital is split into multiple classes of shares and the voting
rights associated with each class Section 90(1) of the CA 2016. If your company has a class of
shares whose holders are not entitled to vote at the company's general meetings, the descriptive
title of the class's shares must include the words "non-voting," and your company must ensure that
those words appear legibly on any share certificate, prospectus, or directors' report it issues as
stated in Section 90(2) of the CA 2016. In order to implement this your company's share capital
is stated in the shareholder's equity portion of its balance sheet. Based on the source of the funding,
the information may be reported in distinct line items. A line for common shares, another one for
preferred shares, and a 3rd with additional paid-in capital are frequently included.

b) Company is liable to purchase its own shares

As for the second matter that you wish to include in your company’s constitution, there are
several important provisions that must be referred to. Generally, common law dictates that a limited
company is strictly prohibited from returning its capital to its own members, thus by extension this

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prohibition includes the company members buying their own company’s shares. This prohibition
for companies to buy their own share is made clear in the case of Mookapillai v Sri Saringgit Sdn
Bhd & Ors [1981] 2 MLJ 114. In this case, the minority shareholders of the company made an
application to either wound up the company or buy the company’s own shares. As a result of this
application, the company ended up being wound up. Stay of the proceedings were applied by the
appellant when the process to liquidate the asset was started by the liquidator. Subsequently, it was
agreed by the minority and majority shareholders that the company would buy the shares belonging
to the minority shareholders and to have the company’s issued paid capital to be reduced. When
they applied for the confirmation to reduce the capital of the company, the application was rejected
by the court. On appeal, it was held that the principle laid down in Trevor v Whitworth that a
company is prohibited from buying its own shares remains standing.

This prohibition was put into words in Section 123(1)(b) of the CA 2016 whereby it states
that a company has no power to deal in or lend money on its own shares. This means that it is
totally prohibited for a company to purchase back its shares. There are a few reasons that justify
this prohibition. One of the reasons is that if the company were to reduce its capital, it would be
disadvantageous to the creditors as it would result in a depletion of capital. Next, the senior
management and current board may use the share buyback to establish their control, and it may
also give the management of the company an opportunity to manipulate the share price. The
seriousness of this prohibition can be seen in subsection (3) of Section 123 where it states that any
officer of the company who breached the rules provided in subsection (1) commits an offence with
subsection (4) requires the officer who breaches this provision to pay compensation to the
company or anyone who suffered loss or damage as a result of his contravention of the provision.

Nevertheless, there are some exceptions to the general rule in which a company would be
allowed to purchase its shares. One of the provisions in Company Act 2016 which serves as an
exception to Section 123 is Section 127. Under Section 127, a public listed company is allowed
to purchase back its own shares. Hence, as this involves purchasing quoted shares on a stock
exchange; only public listed companies are exempted from the prohibition of share buyback.
Subsection (2) of the same provision provides for some conditions that must be fulfilled before
the public listed company is allowed to purchase its shares. Firstly, subsection (1) states that the
public listed company’s constitution must authorise the company to the share buyback. Next,

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subsection (2)(a) provides that the company must be solvent when the purchase is made and must
ensure that it would not become insolvent as a consequence of the share buyback. The third
condition is that the company must purchase the shares through Bursa Malaysia as per Section
127(2)(b). Besides that, the public listed company must comply with the procedures provided in
Bursa Malaysia Listing Requirements and the purchase must be made in good faith and in the
interest of the company as stated under Section 127(2)(b) and (c) respectively.

However, notwithstanding the provisions stated above, it is to be noted that your company is
a private limited company. As pursuant to Section 123(1)(b) and Section 127(1), it is not possible
for your company to purchase its own shares as it is prohibited by the Company Act 2016 as only
a public listed company is allowed for share buyback. Therefore, this matter would not be able to
be included in the constitution of Cahaya Indah Sdn Bhd.

c) No proxy is entitled to vote on a show of hands

According to the Company Act 2016, a proxy can be defined as a person that is appointed
by the member of the company to attend a general meeting and also votes on behalf of that member.
In addition, Section 3334(1) of the CA 2016 states that a member of the company have the
statutory rights to appoint any other person to act as his proxy and the proxy is entitled to all the
rights of the member that he is presenting and it includes the rights to attend, participate, speak,
and vote at a meeting of members of the company. As an example, when the shareholder of the
company cannot attend the meeting in person, he can appoint a proxy in order to vote in his
absence. Theoretically, every member of the company that owns share capital shall be entitled to
one vote in respect of each share or stock held by him as pursuant to Section 293(1)(a)(i) of the
CA 2016.

Furthermore, Section 294(1) of the CA 2016 stipulates that a proxy is entitled to vote on a
show of hands if he is appointed by a member who is entitled to vote on a resolution. However, it
is pertinent to note that the right to vote on a show of hands is provided only when he is the only
proxy appointed by the member. This is because according to subsection (2) of the same proviso,
in a situation where the member that is entitled to vote on a resolution has appointed more than
one proxy, then the proxies shall only be entitled to vote on a poll. Besides that, in respect to that
matter, the appointment of the proxies shall be invalid if the member does not specify the

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 proportions of his holdings that are going to be represented by each proxy. The above principles
can be seen in the case of Lee Ah Hah @ Lee Yean & Anor v The Chin Lan & Ors [2019] MLJU
106 where the court in this case held that a proxy’s words and actions at the meeting are those of
his appointer, thus it shall be valid.

By adhering to the position mentioned in the legislation we shall reply to your request for
advice. Firstly, we are of the opinion that the proposed action of Cahaya Indah Sdn Bhd to include
the proviso of “no proxy is entitled to vote on a show of hands” in the company’s constitution shall
not be treated as valid. This is because the law gives rights to a proxy that has been appointed by
the member of a company to exercise all the rights owned by the member including the rights to
attend, participate, speak, and vote on a show of hands. Furthermore, as portrayed in the case of
Lee Ah Hah @ Lee Yean & Anor v The Chin Lan & Ors [2019] MLJU 106, a proxy’s right shall
be the same as the appointing member of the company and other person has no right to deprive of
the said rights. However, it is pertinent to note that, the rights to vote on a show of hands shall be
treated as invalid by Cahaya Indah Sdn Bhd if there is more than one proxy being appointed to
represent a single member of the company.

d) A proxy may be appointed as a chairperson of a members’ meeting

A proxy is defined as another person designated by a member of a company to exercise all

or all of the said member's rights to attend, participate, speak, and vote at a meeting of members
of a company under Section 334(1) of the CA 2016. Section 392 and 339 of the CA 2016 can be
referred to determine whether or not a proxy may be appointed to be the Chairperson in the
meeting. Section 392(1) of the CA 2016 stipulates that unless otherwise stated in the constitution
of a company, the meeting of members shall be presided by the chairman of the company acting
as the chairperson of the meeting. Section 392(2) of the CA 2016 provides an alternative in an
event where the company has no chairman or if the chairman is absent from the meeting 15 minutes
after the meeting is supposed to start or the chairman simply refuses to act as the chairperson.
Subsection (2) provides that if such a case happens, the members who are present in the meeting
can elect a member of the meeting to be the chairperson. Additionally, Section 336 of the CA
2016 authorises the proxy to be elected as a chairperson of a meeting of members by a resolution
passed at the meeting.

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 Nevertheless, it is important to note that in a case where the shareholder of the company
and the proxy are both attending the meeting, revocation of the proxy shall take effect immediately.
This principle can be seen in the case of Cousins v International Bricks Co Ltd [1931] 2 CH 90,
where the court held that if the shareholder who having appointed a proxy, personally participate
and votes in the meeting, the vote made by the shareholder himself shall be valid on the ground
that a member of the company who was present together with his proxy shall not be deprived of
his right to vote and the proxy is revoked thereby. In regards to that your company may add this to
your constitution and implement it following the provisions under CA 2016 as stated here.

In conclusion, as for the first proposal, only the provision for share capital is divided into classes
and a proxy may be appointed as a chairperson at a meetings can be adopted in your company’s
constitution. Therefore, for the procedure of adoption, your company needs to follow the special
resolution procedure as mentioned in Section 32 of the CA 2016. Then, your company must lodge
the constitution with the Registrar within thirty days of the constitution adoption as mentioned in
Section 32(4) of the CA 2016. In the nutshell, your company’s constitution must include matters
that are permitted by the Companies Act 2016 and the general content can be referred to in Section
35(1) of the CA 2016.

OPINION ON PROPOSAL 2

Since it is mentioned in the memo that your company is recommended to pay dividend to
the shareholders by acquiring profits from disposing its quarry in Langkawi, it is necessary to take
note that your company may only distribute the available profits in the forms of dividends to the
shareholders if your company is solvent by virtue of Section 131(1) of the CA 2016. Hence, it is
important for your company to pass all the requirements for its to be regarded as solvent through
the solvency test first which are your company must ensure that there is no basis for the company
to not be able to pay its debts swiftly after the transaction pursuant to Section 112(1)(a) of the CA
2016, your company also have to show that it can pay its debt before its due within 12 months
instantly after the distribution is made according to Section 132(3) and Section 112(b)(ii) of the
CA 2016 and if your company intended to wind up, your company must ensure that the company
can pay its debts in full payment within 12 months after the commencement of winding up by

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virtue of Section 112(1)(b)(i) of the CA 2016 and your company must also shows that the
company’s assets are more than the company’s liability during the day of transaction according to
Section 112(1)(c) of the CA 2016. In the case of Lubbock v British Bank of South America
[1892] 2 Ch 198, a company has proposed to pay dividends from the profit of selling its assets but
one of the shareholders stated that the profit from the sale of the assets of the company could not
be distributed as dividend. It was held by the court that the company can pay dividends to its
shareholders from the profits gained by selling its assets. In the case of Ammonia Soda Co Ltd v
Chamberlain [1918] 1 Ch 266, the court states that the dividend can be paid from the current year
revenue profits even though the company has faced losses before since the period of account is
treated not in a continuous process.

Now it can be said that your company is solvent since it has passed all the requirements for the
solvency test that have been mentioned since we assume from the memo that even though your
company has suffered from the outbreak of Covid-19, the fact that your shareholders still stay in
your company shows that the company has no intention to wind up in the future within 12 months
at least and that your company is still doing good in terms of profit margin which means that the
company still has available assets and the fact that your company has intended to dispose the quarry
in Langkawi despite have suffered from the outbreak of Covid-19 shows that the quarry is not your
only asset which means that your company can still survive and pay any debts without it. Now that
it has been said that your company is solvent to dispose your quarry in Langkawi and pay dividends
to your shareholders from the current year revenue profits based on Ammonia’s case, the next steps
that should be taken are the directors of your company have to make a solvency statement first
according to Section 113(1) of the CA 2016 within 14 days according to Section 117(5) of CA
2016 and provide any proofs such as the documents regarding the current liabilities and affairs
pursuant to Section 113(4) of the CA 2016 so that the directors in your company can be satisfied
that the company will be solvent instantly after the distribution has been done to allow them to
authorise the distribution at appropriate times by virtue of Section 132(2) of the CA 2016 before
disposing your company’s quarry in Langkawi to pay dividends to your shareholders. All in all,
we are supporting this proposal which is to dispose the quarry in Langkawi to pay the loyal
shareholders in your company since your company is solvent and the court also may support this
based on Lubbock’s case to carry the action and thus, it is recommended for your company to
follow the steps that has been stated accordingly to avoid any legal problems during the process.

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OPINION ON PROPOSAL 3

Lastly, regarding your company’s third proposal to hold a general meeting, the board of
directors may call for a meeting as you have the ability mentioned in Section 310(a) of the CA
2016. In order for Cahaya Indah Sdn Bhd to call the members for a general meeting, notice of
meeting should be issued to every member as stated in Section 321 of the CA 2016 following with
the Section 71(1)(a) of the CA 2016. Therefore, you may issue the notice of meeting to your
directors, members of shareholders that have the right to vote and to your company’s auditor. Due
to the fact that your company is a private company, your auditor may attend the general meeting
especially when there are financial matters to be presented. Hence, your company’s auditor should
attend the general meeting because in the proposal, it stated that your company will be declaring
the shareholders’ dividend in the meeting. Referring to Section 316(1) of the CA 2016, you have
to issue the notice of meeting at least prior 14 days of the meeting date and if you failed to give
the notice of meeting to the members, the meeting is considered invalid. Therefore, I agree with
your company’s proposed date to hold a general meeting on 20 January 2022 as long as you issued
the meeting’s notice to the members before 6 January 2022.
The main reason for issuing the notice of meeting is to inform the members of the meeting
about the matters to be discussed so that they can decide whether to attend and to prepare their
thoughts on matters that will be voted on and decided during the general meeting. Provided in
Section 317 of the CA 2016, the contents in the meeting notice should specify the meeting details
such as the date, time, place and matters that will be discussed and decided upon. You must make
sure that during the general meeting, matters discussed are only matters that you specify in the
notice. This is because you should protect the interests of the absent members. Any matters that
were not specified in the notice but discussed and voted upon during your general meeting, are not
valid and should not bind the company. However, there were exceptional circumstances where
matters that were not mentioned in the meeting notice can bind the company. As emphasised in
the case of McLure v Mitchell [1974] 6 ALR, if all members who are entitled to attend and vote
at the meeting agree to discuss a matter not included in the notice, that matter can be discussed
hence binding the company upon the decision. Next, to give the meeting notice to members, you
may give it in the form of hard copy or soft copy, subject to your company’s constitutions, if any.
By referring to Section 319 of the CA 2016and your company’s constitution, I advise for the notice
to be given in the form of soft copy as it will be quick and cost efficient.

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 As for the topics to be discussed during a meeting, which is usually known as the meeting
agenda, these are normally decided by the person calling the meeting. The chairman of your firm
should set the agenda for the meeting and the topics to be discussed based on the board of directors'
recommendations and what have stated in the meeting notice. Resolutions relating to subjects
wholly within the board's powers or where CA 2016 confers sole authority on the board to initiate
specific transactions cannot be included on the agenda since the general meeting that your company
will hold will lack the ability to pass them. The agenda for the meeting might also include topics
for discussion rather than making a decision. Referring to your proposal, the matters of the adoption
to your Company’s Constitution, declaration of dividend payment to the company’s shareholders
and other matters that are allowed to be passed during the general meeting can be included.
The chairman of the meeting will call the meeting to order on the day and time given in the
notice of the meeting and in this case it will be the 20th of January 2022, then, he is required to
ascertain that a quorum is present and proceed to conduct the meeting according to the agenda
specified in the notice of the meeting. Every meeting must have a chairperson, who is appointed
in accordance with the articles of incorporation. During the commencement of the meeting,
pursuant to Section 195 (1) of the CA 2016, although the chairman has complete control over how
a meeting is run, he should provide members a reasonable amount of time for the other present
members to engage and ask questions. During this meeting, the chairperson should establish fair
restrictions and processes for raising questions or remarks. This might be expressed in the meeting
notice or clarified at the beginning of the meeting.
If your upcoming general meeting lacks quorum, an adjournment may be called. A meeting
cannot proceed to business if there is a lack of quorum, or if the meeting could not be held properly
for any reason, or if occurrences occur that compel the adjournment of an ongoing meeting. The
chairman has the authority to decide whether or not a meeting in progress should be adjourned. A
meeting that has been called cannot be postponed unless the constitution allows it. When a meeting
that was supposed to take place on a certain date is postponed to a later date, it is called a
postponement. This is distinct from an adjournment, which occurs when a meeting is convened on
the date specified in the notice convening the meeting but no business is conducted. So, this should
be taken note of by your firm in order to ensure the meeting runs smoothly.
This meeting can only get down to business if there is a sufficient quorum, or the number
of persons who must be present for the meeting to be genuine. Section 328(2) of the CA 2016

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establishes a quorum of two unless the constitution specifies a higher number. Even if someone
attends in more than one role during this meeting, they are only counted once for the purpose of
meeting the quorum requirement. Section 328(4) of the CA 2016 states that no business can be
done at a meeting of members unless a quorum is present at the time the meeting begins. The term
"when the meeting proceeds to business" implies that a quorum is required when the meeting
begins, but not during the meeting. This meeting may be adjourned to the same day the following
week at the same time and place if there is no quorum within half an hour of the scheduled meeting
time. There is no need for a new notice in this case. If the board of directors decides on a different
day, time, or location, a new notice must be given. The meeting is dissolved if it is called as a
consequence of a member's request under Sections 311, 312, or 313 of the CA 2016. The
constitution, on the other hand, may provide for something different.

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