Tutorial

LAW 3210 ( SEM 1 2020/21)

(Topics : Effect – Share capital)

Question One

Ahmad and Baba incorporated a construction company, Bina Sdn Bhd in 2022. The directors
and shareholders of the company are Ahmad, Liza (Ahmad’s wife), Baba and Nina (Baba’s
wife).

a)Upon incorporation, Baba, on behalf of the company had entered into a contract with Z
Trading to provide raw materials every three months. It was also agreed that payment should
be made within two weeks after the delivery of the raw materials. There was no payment for
the last three deliveries made by Z Trading.

Bina Sdn Bhd had also applied for a loan from DD Bank. The company’s loan application
was successful with all the directors of the company acting as guarantor for the repayment of
the loan. The loan now has been a few months in arrears.

Meanwhile Baba found out that Ahmad, who previously had a business on his own, owed Mr
X RM10 000.
Advise whether Bina Sdn Bhd would be liable to DD Bank, Z Trading and Mr X.

b)In early 2023, Ahmad and Baba agreed that Bina Sdn Bhd was to set up a subsidiary
company, Reka Sdn Bhd, which would be involved in providing interior decoration and
making kitchen cabinets. Bina Sdn Bhd owns 80% of the shares in Reka Sdn Bhd whilst the
remaining shares were held by Amir and Mat (both are relatives of Ahmad).

Reka Sdn Bhd borrowed money from a Bank and defaulted on the payment. The Bank wants
to sue Reka Sdn Bhd and Bina Sdn. Bhd. on the basis that Reka Sdn Bhd is a subsidiary of
Bina Sdn Bhd. Furthermore, Ahmad and Baba are also the directors of Reka Sdn Bhd and
both companies share the same office address so the corporate veil should be lifted.

Advise the Bank.

Question Two
Aero Sdn Bhd (Aero) was incorporated in 2021. The principal activities of the company are
to undertake repair and maintenance service of aircraft. Arif, Alif and Ashraf are the
shareholders as well as the directors of Aero Sdn Bhd.

In order to expand its business, Aero incorporated a wholly owned subsidiary, Aero X Sdn
Bhd to provide ground handling services and training for pilots and staff. In fact, Aero X Sdn
Bhd shares the same premises of business, the same employees and the profits of Aero X are
treated as the profits of its parent company, Aero Sdn Bhd.
Due to the economic downturn, Aero X has to downsize its business operation. Some
employees of Aero X have to be retrenched. However, they must be compensated in
accordance with the terms of the employment scheme.

Aero X seeks assistance from its parent company, Aero Sdn Bhd for the payment of
compensation to its retrenched employees. Advise Aero Sdn Bhd.

Question Three
Nik, Raju and Lan incorporated a company known as 4season Sdn. Bhd. (4season). The
company involved in retail bakery supplies including bakery tools and equipment as well as
bakery ingredients.
Prior to the incorporation, Lan had entered into a contract with Metal Product Sdn. Bhd.
(Metal product) to supply commercial mixer, mixer spare parts and accessories. Lan informed
Metal Product that the goods were purchased for and on behalf of a company which is yet to
be incorporated. Lan paid twenty percent of the purchase price to Metal Product as a deposit.
Nik and Raju promised to Lan that the company would ratify the contract once it is
incorporated. The goods were delivered after the incorporation of the company and Nik had
duly signed the acceptance form. During the first general meeting of 4season, the transaction
between Lan and Metal Product has not been raised at all.

Advise whether 4season Sdn Bhd is liable to pay for the goods delivered by Metal Product
Sdn Bhd and to reimburse the deposit paid by Lan.
 Question Four

Halim, Gani and Zam incorporated EasyCar Sdn Bhd to carry on a car rental business. They
were the shareholders and the only directors of EasyCar Sdn Bhd. Upon incorporation Gani
transferred a land which he inherited from his father to be used by the company to build
garage and a small office. Later the shareholders found out that Gani had sold the land to the
company above market price. However, Gani clarified that he had already informed the other
directors about it.

Prior to the incorporation, Halim had entered into a contract with Motor Trading to purchase
two Proton Exora to be used by the car rental business. Zam and Gani promised Halim that
after the incorporation of Easy Car Sdn Bhd, the company will pay the monthly instalments
for the cars.

Advise:

a) The shareholders of Easy Car Sdn Bhd whether Gani had breached his duty as a promoter and
what are the available remedies.

b) EasyCar Sdn Bhd whether the company would be liable to pay the monthly instalments to
Motor Trading

Question Five
Rudi and Hakim incorporated a construction company RH Sdn. Bhd. They were the
shareholders of the company together with Hani and Rita. They were also the directors of the
company.

(i) Prior to the company’s incorporation, Rudi was offered a contract to build a few bungalows by the
landowner, Zaki. As Zaki did not have sufficient funds, Rudi informed him that he could
introduce Zaki to RH Sdn. Bhd. Zaki promised to pay Rudi a commission as introduction
fees. When Rudi informed Hakim, Hani and Rita (after the company’s incorporation) about
the contract, they agreed to accept the offer from Zaki. Later, Hakim found out about Rudi’s
commission.
Advise Hakim whether there is any breach of promoter’s duty by Rudi.

(ii) Prior to the company’s incorporation, Hakim managed to secure a contract to renovate a house.
Hakim signed a contract with the house owner. He informed the house owner that the
 contract was entered into on behalf of RH Sdn.Bhd He also ordered building materials for
the renovation. At the first general meeting, RH Sdn.Bhd. ratified the renovation contract.
The building materials were delivered to the house and then were used by the employees of
RH Sdn. Bhd. When the house owner failed to pay for the renovation costs, Hakim wanted to
sue the house owner. The supplier of the building materials sued Hakim for the materials
delivered.
Advise Hakim.

Question Six
Vision Development Sdn. Bhd. (the company) is a construction company incorporated in
2020. Jasni, Fizz and Gan are the directors and each hold 20% shares in the company. The
company hired Amir as a quantity surveyor and Amir owns 2% shares in Vision development
Sdn. Bhd.

a) During last year annual general meeting, the company inserted a new article in its constitution
which provides:

“Any employee of the company who are being terminated is entitled to be compensated
equivalent to his two-month salary”

Recently the company terminated Amir as its quantity surveyor. Amir was given a
compensation of one month salary. Amir wanted to sue the company for contravening the
constitution of the company. Advise.

b) The board of directors of the company proposed to insert these articles:

• The directors have the right to appoint any person to replace them without the consent of the
shareholders.
• Any shareholders who want to transfer their shares must first offer the shares to the board of
directors.

Some of the company members disagreed with the new proposals. What are the grounds for
them to challenge the new articles.

c) Recently the company had entered into a transaction involving health products. Some of the
shareholders wish to initiate action against the company for involving in a venture which is
 contrary with the company’s object clause.
Advise the company as regards to shareholders action and what is the alternative if the
company wants to proceed with the new venture.

Question Seven

Faris, Lee and Din incorporated New Biz Sdn Bhd (New Biz). The business operates at
premises belonged to Faris . Faris had sold the premises to New Biz during its incorporation
at RM300 000 whilst its market price range between RM200 000 - 280 000. The sale of the
premises and the profit made by Faris was known to Lee and Din.

New Biz’s constitution includes the following provisions:

Article 20: The object of the company is to be involved in clothing business.
Article 37: The Managing Director shall not be removed from office until the expiration of
his period of service.

Recently the board of directors of New Biz decided that the company should venture in
producing sanitizers, gloves and face mask due to an airborne pandemic. The company had
ordered raw materials from MK Supply Sdn Bhd to manufacture the new products. Some of
the shareholders in the company did not agree with the company’s new business as it was
against the constitution of the company.
Shukri has been appointed as the Managing Director of New Biz for a period of two years.
His service of employment had adopted Article 37 of the company’s constitution. After one
year of service, the company was not satisfied with his performance and decided to terminate
Shukri’s employment. Shukri believed that his termination contravened New Biz’s
constitution.

Advise:
a) The board of New Biz, regarding the validity of the new business and the contract with MK
Supply Sdn Bhd .

b) Shukri, regarding his termination.

c) Faris, whether there has been a breach of promoter’s duties in the transfer of the premises to
New Biz.
 Question Eight

Ox Bhd, was an unlisted public company incorporated in January 2017. Its issued paid-up
share capital consisted of RM500 000 represented by 300000 ordinary shares and 200 000
preference shares. The directors were Tom, Amin and Nani. There were 50 shareholders
including the three directors.

The constitution provided that, in respect of the preference shareholders, they have the right
to dividend of 6% on the paid-up value of the shares held.
The board of directors passed board resolutions:

i) To issue 50 000 bonus preference to its ordinary shareholders

ii) To reduce the dividends payable on the preference shares to 4% on the paid up value of the shares
These proposals were then implemented by the company despite objections from Green and
Ana who own 5% of the preference shares each.

Subsequently, G ee heard that after the company’s incorporation, the board decided to carry
out a new business venture in March 2017. Gee discovered that Ox Bhd required an asset for
this new business venture but did not have sufficient funds to pay for the asset. The board of
directors agreed to purchase Bob’s business and in return the company issued new ordinary
shares of 2 000 000valued at RM2 000 000 as consideration for the asset. Gee discovered that
this transaction after the shares were issued and realized that no general meeting’s approval
was obtained for the issue of new shares.

Upon further investigation, Gee found that Bob bought the business from Tom’s wife. The
transaction occurred in November 2016. Gee discovered that some money was paid by Tom
to Amin and Nani after the sale of the business by Bob was completed. When Gee questioned
the transaction, he was told by the directors that the board had authority to decide on the
transaction. When he complained to the board of directors, he was informed that he did not
have sufficient numbers of shares to challenge the decisions.
Not long after, the board convened a general meeting to amend its constitution by introducing
a clause that authorized the board to issue shares without having to obtain shareholders’
approval at general meeting or class meeting at all. At the same meeting, the sale and
purchase of the business from Bob was also presented to the general meeting. Both these
proposals were approved by 80% votes of ordinary shareholders. Ana who held 5% of the
preference shares and 5% of the ordinary shares believed that the issue of shares and the
amendment to the constitution were invalid. She contacted Gee to get his views.
Advise Gee and Ana regarding:
a) their locus standi to challenge and the legitimacy of the directors’ conduct relating to the board
resolutions and the issue of new shares.
 b) the purchase of the business and whether there has been any breach of promoters’ duties.

Question Nine

Jaya Murni Bhd a non-listed public company was incorporated in 2016. The share capital of
the company comprised 1 million ordinary shares, 500 000 preference shares and 300 000
redeemable preference shares .

The company’s constitution provides that:

• The preference shareholders are entitled to 8% dividends per annum in priority to other classes
of shares.
• The preference shareholders are entitled to participate in surplus assets upon winding up
equally with ordinary shareholders.

Early this year the board of director decided to expand the business of Jaya Murni Bhd. In the
recent meeting the board resolved the following:

i) To issue 100 000 new ordinary shares

ii) To issue 10,000 new preference shares with the same rights as existing preference shares
iii) To redeem the redeemable preference shares by using the proceeds from the new issue of shares

A who holds 10 % ordinary shares objects the issuance of new ordinary shares. He believes
that the new issuance would dilute his shareholding. B who holds 8% of the redeemable
preference shares refused to have the company redeem his shares.

Advise:

a) The board, regarding the requirements /procedure to be complied with in carrying out those
proposals.

b) A and B concerning their disapproval.