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Tutorial 7

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32 views

Tutorial 7

Uploaded by

2022917099
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Tutorial 7, question 1

The constitution of Syarikat Reader Bhd states that the main object of the company is to
manufacture and sell sardines imported from Norway. Last month, the company purchased 60
acres of land to build shopping malls as its expansion plan for 2020. The general meeting of
the shareholders held last month, approved of the said plan though it clearly contradicts the
company's constitution.

The directors argued that under the Companies Act 2016, the doctrine of ultra vires has been.
abolished. Further, some of the shareholders intend to alter the company's constitution to enable
the company to carry out the expansion plan but is unsure on the steps required.

With reference to the Companies Act 2016 and decided cases, advise the shareholders on the
issues stated above.

The issue is whether the Syarikat Reader Bhd, can. Alter the company’s constitution in pursuant
with companies act 2016.

The doctrine of ultra vires traditionally prevented companies from engaging in activities
beyond their stated objectives in their constitutions. However, under the Companies Act 2016
(CA 2016), this doctrine has been largely abolished, allowing companies more flexibility.

Every company which is incorporated under the act must be registered under the Memorandum,
in accordance with section 16(4) & section 16(5), under this provisions the basic requirement
are set out in section 18(1)(a)-(f), however, the most relevant requirement to be discussed is
the Section 18(1)(b), the functions of the object clause is to identify the activities in which the
company may engaged. If the company has acted ultra vires and rendering the act as void ab
initio.

This can be seen in the case of According to the case of Ashbury Railway Carriage & iron
Co v Riche, was incorporated with an object clause that stated its purpose was to manufacture
and sell railway carriages and wagons and to carry on the business of mechanical engineers
and general contractors. The company's directors entered into a contract with Riche to finance
the construction of a railway in Belgium, which was outside the scope of its stated objects in
the memorandum of association. Some shareholders disapproved of this contract, arguing that
it was beyond the company's powers as defined by its object clause. Despite the disapproval,
the directors continued with the contract. Subsequently, the company sought to repudiate the
contract, leading Riche to sue for breach of contract.

Court held that the contract was ultra vires (beyond the powers) of the company because it was
outside the scope of the company's object clause. Since the contract was ultra vires, it was void
and could not be ratified by either the directors or the shareholders. This meant that the contract
was unenforceable against the company. The decision established the principle that any act
performed by a company that is beyond the scope of its stated objects in its memorandum of
association is void and cannot be ratified or validated, even if all shareholders agree.

Doctrine of Ultra vires according to the common law, it was stated that any act by the company
which is not specified in its object is regarded as void. This can be seen in the case of Re Jon
Beauforte (London) Ltd, a company was incorporated to carry on the business of tailors and
manufactured of clothes and materials. It then decide to manufacturer veneered panels and
ordered coke on the company letterhead, which stated that the company was a manufacturer of
veneered panels. The supplier of the coke then sought to enforce payment and he failed because
the contract was ultra vires. The court held that, the supplier cannot enforce contract because
he had constructive notice that such an activity was outside the company’s object . however,
Ultra vires has been modified in section 20 of the companies act. This followed by the to
Section 35 of the Companies Act 2016 states that a company has the capacity, rights, powers,
and privileges of a natural person. This implies that companies are not strictly bound by the
objects clause in their constitutions unless their activities contradict any express prohibitions
in the Act or the constitution.

By applying the law to the case above, it shows that to alter the constitution is void according
to the common law, to ensure that the shareholders and creditors interest are protected. Hence
Syarikat Render Bhd are not comply to any act done which is not specified in its object.

In conclusion, the alteration of the constitution made will be void, However there are two ways
of alteration which through by passing special resuluttion and alteration by the director.

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