FACULTY OF BUSINESS AND MANAGEMENT

BACHELOR OF BUSINESS ADMINISTRATION (HONS) HUMAN RESOURCE

MANAGEMENT (BA273)

COURSE CODE:

BUSINESS LAW (LAW416)

ASSIGNMENT TITLE:

GROUP ASSIGNMENT

PREPARED BY:

NURHAZATUL AMNI BINTI HISHAM 2023663488

NUR FARISHA HUSNA BINTI JAAFAR 2023213346
UMMI NAJUWA BINTI ZAKARIA 2023885424
NUR ALYA IZZATI BINTI JOHARI 2023213588

PREPARED FOR:

MISS NUR IRINAH BINTI MOHAMAD SIRAT

DATE OF SUBMISSION:

14 January 2024
Table of Contents

1. Part A Issue
1:
Principles of Law
Effects of incorporation (characteristics of a 1-4
company)
Application
Conclusion
2. Issue 2:
Principles of Law
Exceptions to the ‘Veil of Incorporation Principle’ or 4-7
Lifting the Veil of Incorporation Principle
Application
Conclusion
3
Part B: the differences between a partnership and a 7
company

4
References 8
PART A

Issue: Whether Bina Harta Construction Bhd (“BHC”) can take legal action against Kaya
Raya Co (“KRC”).

Principles of law:

1. A company is governed by the law and is registered under the

Companies Act 2016 (CA 2016).

2. A company is an incorporated association. This means that a

company is a corporate body. Once formed and registered a company
becomes an artificial legal person that exists independently from its
individual members.
3. Formation of company

Section 9 of the CA 2016 requires a company to have the following

a) A name
b) One or more members having limited or unlimited liability
c) In the case of a company limited by shares-one or more shares
d) One or more directors. (However, a public company is required to
have two or more directors: section 196(1)(b) of the CA 2016.

4. Effects of incorporation (characteristics of a company)

1) Separate legal entity/ personality – section 20 (a)

- The law treats a company as a separate legal person

from its members and the persons who manage its operation.
The
principle is known as the “veil of incorporation” (there is a veil
that separates the company from its members.) - In Salomon v
Salomon & Co. Ltd.
- The court held that Mr. Salomon and the company were
two separate entities even though Mr. Salomon owned the
majority of shares in the company.
In the case of Prest v Petrodel Resources Ltd.
 The court held it has the power to ignore the separate
personality of a company if:
• There is no other legal method of achieving an equivalent
result.
• The structure of the company is used to evade a legal
liability that the owner of the company would have
otherwise incurred but for the use of the company
structure.
• This was referred to by Lord Sumption as the “evasion
principle”. On the facts, this principle did not apply because
Mr. Prest had set up companies, to which the ownership of
most of his property had been transferred, long before his
marriage had broken down.

2) A company has a perpetual succession – section 20 (b)

- A company’s life will continue until its name is struck off from
the register of the company following winding up or other
legal processes. Even if all its directors have resigned, or all
members pass away the company still legally exists.
- In the case of Re Noel Tedman Holding Pty Ltd.
- The court held that the personal representative of the
deceased members could be appointed to appoint the
director. The director then could approve the transfer. Later,
the representative could wind up the company.

3) A company may sue and be sued in its own name – section 21

(1) (a)
- A company has a legal personality like a natural person. A
member may not maintain a legal action on the company’s
behalf. If a company has a right against a party under a
contract, is it for the company to sue.
- In Foss v Harbottie [1843] 2 Hare 461 - It was held that
because the company suffered the injury, it alone could take
action against the persons who had misapplied its property,
not other people. Therefore, the members could not maintain
such a suit.
4) A company may acquire, own, hold, develop, or dispose of any
property – section 21 (1) (b)
- A company can own property on its behalf. Even if a
person owns all shares in the company, he does not own the
company’s property. All assets, rights, and liabilities incidental
to the company’s activities belong to the company and not to
any members or shareholders.
- In the case of Macaura v Northen Assurance Co. Lid.
- The court held that when Macaura sold the timbers to the
company, he gave up his interest in it. The insurance claim was
void since he bought the insurance in his own name, but the
timbers belonged to the company. Thus, the insurance
company was not obliged to pay.

5) A company may enter into transactions – section 21 (1) (c)

- For a company to be able to carry on its business or activity, it

must have the capacity to do any act or to enter into
transactions. Section 64(1) of the CA 2016 provides how a
company contract may be made: A contract may be made by a
company in writing under its common seal;

a) on behalf of a company, by a person acting

under its authority, express or implied; or
b) on behalf of a company, orally, by a person
acting under its authority, express or implied.

6) The liability of the members may be limited. - section 192(1)

The liabilities of the company are its own, not those of its members.
A company is liable for its own debt.

-In the case of Re Application of Yee Yut Ee

The court quashed the award made by the Arbitration, stating that the
director is not liable for a debt of an incorporated company.
Application: Based on the situation given, Rahman, Razak, and Roy are the
shareholders and directors in KRC, a developer company. They
contracted with BHC, a supplier of construction materials for the
supply of bricks, cement, tiles, and glass blocks. In the meantime, one
of their shareholders, Rahman died. However, KRC failed to pay the
debts worth RM1,000,00.00 to BHC.

-By applying Section 20 (a) of the Companies Act 2016, BHC cannot
take legal action against the KRC’s members since the law treats a
company as a separate legal person from its members and the
persons who manage its operation. Therefore, legal action should be
taken against KRC itself instead of its members.
-By applying Section 20 (b) of the Companies Act 2016, BHC can
take legal action against KRC even though one of the shareholders
has died. This is because the company still legally exists even if all its
directors or members pass away until the company name is struck off
from the register of the company following winding up or other legal
processes.

Conclusion: BHC is entitled to take legal action against KRC for failing to pay

the debt since KRC is still registered under the register of the
company. The legal action should be taken against KRC itself instead
of its members.

Issue: Whether Kaya Raya Co (‘KRC’) can take legal action against the
shareholders.

Principles of law:

1. A company is governed by the law and is registered under the

Companies Act 2016 (CA 2016).
A company is an incorporated association. Once formed and
registered company becomes an artificial legal person that exists
independent from its individual members.

2. Formation of company
 Section 9 of the CA 2016 requires a company to have the following

a) A name
b) One or more members having limited or unlimited liability
c) In the case of a company limited by shares-one or more shares
d) One or more directors. (However, a public company is required
to have two or more directors: section 196(1)(b) of the CA
2016.

3. Exceptions to the ‘Veil of Incorporation Principle’ or Lifting the Veil of

Incorporation Principle

In the case of Solomon V Solomon & Co. Ltd had introduced the veil
of incorporation principle. However, there are certain exceptions to this
principle. Lifting the corporate veil whereby the separate legal identity
of a company will be disregarded due to public policy considerations
or to pursue the real wrongdoers who control the company
fraudulently.

a) section 140(1) of the Income Tax Act 1967

Under this section, the Director-General of Inland Revenue is
allowed to ignore transactions that have the effect of avoiding
and evading any liability to tax.
In the case Director General of Inland v RH Sdn Bhd
The court unanimously dismissed the DGIR’s appeal and
affirmed the decision to set aside the tax assessment raised by
the DGIR.
b) Responsibility for fraudulent trading – section 540 If a
company is set up to carry its business to defraud creditors
with the intention or for a fraudulent purpose, the person(s)
who defraud is personally liable for the debts and other
liabilities of the company.
In the case Prem Krishna Sahgal V Muniandy Nadasan
The court held that the company’s funds had been siphoned
out through various means, including to companies connected
to the managing director, and ruled against him.
c) When debts are contracted at the time when the company
has no ability to pay – section 539(3) and section 540(2)
In the case of Bon Chong Hing & Anor V Gama Trading
 Company (Hong Kong) Ltd
The court held that any person who contracts a debt when he
knows that his company is hopelessly insolvent could rightly be
classified as a person who contracted a debt without any
intention of paying the debt, this may pass off carrying on the
business of the company with the intention of defrauding
creditors.
d) When the company is used to evade legal obligation or
abuse of legal rights In the case of Jones V Lipman
The court held that the company was a creature of Lipman, a
device and a sham, a mask that he holds before his face in an
attempt to avoid the eyes of law. Both Lipman and the
company were ordered to specially perform the contract to sell
the property.
e) When a group of companies are in reality a single unity
In the case of Hotel Jaya Puri Bhd V National Union of Hotel,
Bar & Restaurant Workers
The court ignored the separate identities of the restaurant and
the Hotel and treated them as one single entity.
f) When the court is asked to promote justice or to exercise
discretion.
The court may lift the veil of incorporation and treat the
company and its members as a single entity if it is just to do so.
Hence, an injunction may be granted against a company in an
action against its controller, especially when there is fraud
involved.

Application: Based on the situation given Razak is concerned whether he can be

made personally liable for the debt owed to BHC. He finds out that
Roy has manipulated financial statements to show profitability. Roy
also diverted company assets for personal use leaving KRC’s actual
financial state in dire condition.

By applying section 540, section 539(3), and section 540(2) of the

CA 2016, Roy is set up to carry the business to defraud creditors or
 for a fraudulent purpose with intention and he also has a reason to
believe that their company is not in a good position to repay debts but
still entered the contract with Bina Harta Construction Bhd, so he will
be personally liable for the debts and other liabilities of the company.

Conclusion: Kaya Raya Co (KRC) can take legal action against Roy for lifting the
corporate
veil by manipulating the financial statements of the company to show
profitability.

PART B

What are the differences between a partnership and a company?

Differences between a partnership and a company?

Partnership Company
Two or more persons carrying on business A company is a separate personality from
with a view of profit. its members.
Partners are agents of the firm for carrying Members of the company are neither its
on the business in the ordinary course of managers (directors) nor its agents.
business and are generally entitled to Management is carried out by directors and
manage the firm. other officers of the company.
Partners may withdraw capital but their Capital subscribed by members for their
liability for the firm’s debts to its creditors is shares cannot be ordinarily returned to
unlimited. them, but (in a limited company) they are
not liable for their debts once they hold fully
paid shares.
Partners have unrestricted powers of Companies can borrow for purposes
borrowing in terms of amount and purpose. covered by their objects as contained in the
company’s constitution.
Partnership may be dissolved informally i.e. A company is dissolved by winding up and
by agreement of all partners liquidation process which is a formal
procedure.

References:

Internet:

1. Separate legal personality & limited liability. (2023, May 30).

 https://legislate.ai/blog/separate-legal-personality-limited-liability

2. Shayvillestudio. (n.d.). LAI FEE & ANOR v. WONG YU VEE & ORS.
https://www.elaw.my/JE/01/JE_2023_15.html
3.
4. Director’s Liabilities for Insolvent Trading Under the Companies Act 2016 - Azmi &
Associates. (2022, August 4). Azmi & Associates.
https://www.azmilaw.com/insights/directors-liabilities-for-insolvent-trading-under-
thecompanies-act-2016/

5. Fraudulent Trading and an Expectation that Counterparties do not commit Fraud in

an Acquisition Transaction | Malaysia notes. (2023, July 3).
https://hsfnotes.com/malaysia/2023/07/03/fraudulent-trading-and-an-expectationthat-
counterparties-do-not-commit-fraud-in-an-acquisition-transaction/