36008500 Nota Terkini Company Law

8/11/2019 36008500 Nota Terkini Company Law

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INTRODUCTION-which of the followingrepresents a company?

A Farmasi Ibrahim

B Melor Enterprise

C Zali Sdn Bhd

D Perniagaan Itikmas & Adik Beradik

E Bank Islam Malaysia Berhad

F Klinik Rahim, Said dan Wong


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Companies

The dominant form of business

organisation

Over half a million companies in Malaysia

Created through a process of registration

under statutean artificial legal person

Have special legal characteristics(discussed in Lecture 3)


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What is the purpose of

companies? Traditionally, a means by which a large

group of people with capital and

management resources could come

together to conduct an enterprise on an

ongoing basis

Now also widely used for small business

and by individuals


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Small and large companies

Most companies are small businesses

In 2001, there were 809 companies listed

on the Kuala Lumpur Stock Exchange

(KLSE). (Listed companies are

companies in which you can buy or sell

shares through the KLSE.)


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The architecture of companies

Capital structure

equity capital (shares)

debt capital

Management structure

board of directors and other officers

members (shareholders)


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Choice of form of business association

Types of companies

Registration of companies Listing on the KLSE

Corporate groups


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Choice of form

Distinguish between:

incorporated entities; and

unincorporated entities.

Incorporated entities (corporations) are

separate legal persons

Unincorporated entities have no legal

personality separate from their participants


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Incorporated entities

Corporation is the general term.

Definition in sec 4 of the Companies Act

May be formed:

by special Act of Parliament

under an Act of Parliament conferring power

on some person to create corporations, eg.

the Companies Act 1965


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Unincorporated entities

sole trader

general partnership

limited partnership non-profit associations and clubs

trusts

syndicates and joint ventures


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Some distinction between company,

partnership and sole proprietorship

-refer the notes


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Relevant considerations

choice of form In deciding the appropriate form, consider:

profit or non-profit

limited or unlimited liability

limits on size

ability to raise capital

formalities and expense

audit and reporting requirements

tax treatment


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Choosing a company (cont)

Advantages:

can have more than 20 members (outsized

partnerships prohibited by sec 14)

limited liability

may be easier to raise capital

different tax treatment

company law as standard form contract

flexibility


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Choosing a company (cont)

Disadvantages:

arguably, greater expense in formation and

compliance

publicity

The decision must always depend on the

individual circumstances of the business


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Types of companies

Corporations formed under the Companies

Actare companies

Companies are classified:

by reference to basis and extent of the

members liability (sec 14(2))

as public or private

Some provisions of the Companies Act

apply only to certain types of companies

(sec 14A)


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Types of companies


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Classification by reference to

members liability Company limited by shares (sec 214(1))

Company limited by guarantee (sec 14A)

Unlimited company No liability company


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Classification as public or

private Private companies

section 15:

no more than 50 members

no fundraising activity requiring a disclosuredocument under Part IV, Division 3, SCA

may be a company limited by shares or an

unlimited company with share capitalsec 15

may be an exempt private companysec

4(1)


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Classification (cont)

Public companies:

everything other than private companies

section 4:

companies limited by guarantee and no liability

companies are always public companies

companies limited by shares and unlimited

companies with share capitalmay be public

companies


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Corporate groups

Often different aspects of the business are

owned or carried out by different

companies in a group

Holding companies, subsidiaries and

related bodies corporatesec 6

Controlled entitiessec 5(2)

Circumstances where law recognises

corporate groups


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Company LawLecture 3

Definition of corporationsec 4 of the

Companies Act 1965

The company as a separate legal entity

Corporate capacity

The doctrine of limited liability


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The separate legal entity

doctrine The company is a legal person separate

from its participants

This means that:

its obligations and property are its own and

not those of its participants

its existence continues unchanged even if the

identity of the participants changes


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Limited liability


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Limited liability


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Salomon v Salomon (1897)

Salomon

family

Pty Ltd

company

shoe business

cash, debenture

20,001 shares

6 shares


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Characteristics of companies

Important features of companies arising

from their separate legal personality

can incur obligations and hold rights, and sue

and be sued, in their own name

can contract with their controllers

have perpetual succession

are separate taxpayers participants (may) have limited liability


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Companies are separate from

their controllers Lee v Lees Air Farming Ltd: issue

could Mr Lee be both the controller of a

company and its employee?

Macaura v Northern Assurance: issue

was Mr Macaura the owner of property

that belonged to a company controlled by

him?


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Companies can enforce rights

Vu Siew Chin v Wong Fah Yoon

issue : can incur liabilities and be sued

Foss v Harbottle

issue : enforce rights in its own name


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Lifting the veil/ exceptions Some time the above principle can produce unsatisfactory results-

thus there are exceptions:

Number of members below 2-the person is personally liable

Responsibility for fraudulent trading-the person who knew the fraud

is personally liable Publication of a name-when the name of the co is not published-theperson would be personally liable

Taxation-nationality of members may affect the national status of theco

Holding and subsidiary co-the 2 co are separate legal entities,

however decisions show that they may also be treated as a singleentity

Evasion of legal obligation

To do justice-eg the director making secret profit


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Exceptionspiercing the

corporate veil At common law (rare)

just and equitable groundTan Guan Eng &

Anor v Ng Kwong Hee

corporate form used to avoid an existing legaldutyGilford

company is the agent or partner of the

controllerSmith, Stone & Knight principles underlying a particular law require

the veil to be piercedRe Darby


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Exceptions (cont)

position of group of companiesPeople

Insurance Co Sdn Bhd v People Insurance Co

Ltd

Under the Companies Act, in the insolventtrading provisions in sec 304 and sec 36

Other statutory exceptions:

sec 67(5)financial assistance sec 167profit and loss account


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Exceptions (cont)

sec 121publication of name

sec 140(1)Income Tax Act 1967


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Constitution of company


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Internal governance rules/constitution

comprising :

(a) memorandum of association; and(b) articles of association

Legal effect of the memorandum and

articles of association.


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Constitution of company

Sample memorandum

Sample Article


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What are internal governance

rules ? Rules agreed between the members to govern

the internal workings of the company

Typically deal with appointment, powers and

removal of officers, meetings, classes of shares,dividends, transfer of shares, inspection of

books

Where can we find the internal governance rules

for a company?

in the companys memorandum and articles of

association


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Constitution

A company can adopt a constitution

Constitution contains customised internal

governance rules for that particular

company called:

(a) The Memorandum of Association; and

(b) The Articles of Association.


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Adopting a constitution

Memorandum must be lodged at thetime of incorporation.

Articles of Association can be lodged

when the company is registered, or not.

Adopting, amending or repealing the

articles requires a special resolution.

Memorandum may be altered by special

resolution unless provisions therein

state otherwise


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Model Articles of Association

Table A, Fourth schedule of the

Companies Act1965

Sec 30 of the Companies Act1965

Listed companies must have an articles of

association that is consistent with the

Kuala Lumpur Listing Requirements,

Chapter 7


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Legal effect of the

memorandum and articles of

association (Cont)

Not a contract with outsiders

Unenforceable by outsiders

Raffles Hotel


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Types of directors

Board composition

Appointment, resignation, removal &disqualification of directors

How boards operate in practice


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Types of directors

Every company must have at least two

directors, resident in Malaysia.

Executive directors

CEO / managing director

Others (eg finance director)

Non-executive directors

may or may not be independent


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Types of directors (cont)

Chairperson

Governing director

Nominee director

Alternate director

De facto and shadow directors

sec 4 Standard Chartered Bank v Antico

M l i B d f li t d


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Malaysian Boards for listed

companies

Independent NED

90% with

2 or more


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Appointment of directors

Who can be appointed ?

someone who consents

human, not company

minimum 18 years old

not disqualified

if 70 years or older in a public company,

special rules apply


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Appointment of directors (cont)

New companies

directors named in application

Existing companies

check companys articles of association

(see Lecture 7)

R i ti / l f


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Resignation / removal of

directors Resignation

director needs to notify the company

Removal

by other directors

maybe in private companies (check articles)

by members

private companiescheck articles : Art 69

public companiessec 128


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Disqualification of directors

Grounds (reasons) :

automatically due to certain offences

where the person must obtain leave of

court

where court orders disqualification of

directors of insolvent companies

where the Securities Commissiondisqualifies under the SIA.


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How boards operate

Delegation of powers to : Board committees :

eg audit, remuneration, nomination

CEO / managing director

Director, employee or other person

Directors access to information :

common law (information broader)

companys books, in relation to legal

proceedings.


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How boards operate (cont)

Meetings of directors

usually called board meetings

all directors must be told (receive notice)

a quorum requirement: articles of association

use of technology (e.g. video conf.,

telephone)

paper meetings Art 90


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Duties of directors and other officers

Summary of the duties

Who owes the duties?

To whom are the duties owed?

Who enforces the duties?

Consequences of breaching a duty

The duty of care



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Who owes the duties?


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Who owes the duties? General law duties

Directors Senior executive officers

Why? Because they are fiduciaries

Statutory dutiesAll statutory duties apply to directors

This includes de facto and shadow

directors (see Lecture 10)

Most statutory duties apply to officers

(sec 9) but not sec 132(1)


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To whom are the duties owed?

Answer = the company

In exceptional circumstances, a duty will

be owed to an individual shareholder

Brunninghausen v Glavanics


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Who enforces the duties?

Statutory dutiesSuruhanjaya Syarikat

Malaysia (Companies Commission of

Malaysia)

Common law dutiesthe company (orliquidator if company is being wound up)

What are the consequences of


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breaching a duty?

Discussed in Lecture 13 Breach of statutory duties may result in :

a disqualification order

an order to pay a penaltyan order to pay compensation to the

company = 132D(7)

an injunction = 132C, 132E imprisonment



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breaching a duty? (cont) Breach of a common law duty may result

in the person paying compensation to the

company, damages for breach of duty or

giving an account of profit.


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Duty of care, skill & diligence

Sources of the duty :

section 132(1)

common law contract of employmentfor executive

directors and other executive officers

A director or other officer breaches thisduty if he or she is negligent

D t f ( t)


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Duty of care (cont)

Statutory dutysec 132(1)

A director shall at all times act

honestly and use reasonable diligence

in the discharge of his duties

Re City Equitable Fire Insurance

The duty of care and skill

Use reasonable diligence Can directors delegate?


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Duty of care (cont)

What is the standard of care? (cont)

Now :

Daniels v AWA Ltdcommon law There is no uniform standard for all directors

But it is no longer a largely subjective test

The standard of care required of director X is

the care that a reasonableperson doing Xsjob in Xs company would exercise (a largely

objective test)


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Duty of care (cont)

Under the modern standard, is there

any minimum requirement for all

directors? Yes (Daniels v AWA Ltd). Every director

must :

Obtain a basic understanding of their

companys business

Keep informed about and monitor the

companys activities and regularly attend board

meetings

Monitor the companys financial position


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Duty of care (cont)

Higher standards are expected of some

directors :

Those with special skill Executive directors in relation to the time

spent on company matters, compared to

non-executive directors


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Duty of care (cont)

Delegation and reliance

Delegation

Re City Equitable Fire Insurance

Directors may delegate any of their powers to anyperson, unless the articles restricts delegation

If delegate is negligent, director will be liable

unless directors have monitored or supervised and

use reasonable care to appoint a competentperson


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Other duties

Duty to act in good faith in the best

interests of the company

Duty to act for a proper purpose

Duty to retain discretion

Consequences of breach of duty

Duty to act in good faith in the


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Duty to act in good faith in the

best interests of the company

Section 132(1)also a common law

duty

What is meant by good faith?Director must act honestly


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(cont) What are the companys interests?

(cont)

Members

. Interests of company are generally those of its

members

. But interests of members may conflict and

directors

must balance interests

Company as a commercial entity

separate

Duty to act in the best interests


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of the company (cont)

What are the companys interests? (cont)

Creditors

.Common law principlewhen a company isinsolvent or nearly insolvent, its interests are those

of its creditors, not its members

.Kinsela v Russell Kinsela Pty Ltd



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of the company (cont) What are the companys interests? (cont)

Corporate groups

A Ltd

B Ltd C Ltd

50%+ (or control)50%+ (or control)

Can the directors of B cause B to enter a transaction

that benefits A or C, but does not directly benefit B ?

Duty to act in the best


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Duty to act in the best


(cont) What are the companys interests?

(cont)

Corporate groups (cont)

.Walker v Wimborne

- High Court : directors must put theircompanys interests before the groups

interests

i t t f th


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(cont)Corporate groups (cont)

. Test

Whether a person in the position of the directorcould have reasonably believed the decision

would

benefit the company: Charterbridge

. Equiticorp Finance v BNZ

Directors can approve a transaction that

benefits the

group (or another group company) if their

Duty to act in best interests of


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Duty to act in best interests of

the company (cont)

Employees, customers, suppliers and

the

community

. Do not receive priority over interests of members

.Parke v Daily News Ltd

f


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Section 132(1)also a general law duty

Even if directors actions are in companys

best interests, may still be a breach of duty

if power not exercised for a properpurpose

D f


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Duty to act for a proper

purpose (cont) Two questions :

Question of law : what are the proper

purposes for which the power in questionmay be exercised?

Question of fact : for what purpose was the

power actually exercised?

If more than one purpose, use but for test

Whitehouse v Carlton Hotel



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purpose (cont)

eg The power to issue shares

Normally a power of the board of directors

Proper purposes include :

to raise capital

for an employee share scheme

as consideration for purchase of an asset

Improper purposes include : to entrench the existing board of directors

to fight off a hostile take-over bidder

to make a majority member a minority member



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(cont)

Powers other than issuing shares Kwality Textiles (Msia) Sdn Bhd. v Arunachalam &

Ors Lim Koei Ing v Pan Asia Shipyard & Engineering Co.

Pte Ltd

Permanent Building Society (in liq) v Wheeler

D t t t i di ti


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Duty to retain discretion

Directors cannot undertake or agree thatthey will not exercise powers given to

them in the company's articles of

association or under the Companies Act1965

This would be against the duty to act in the

best interests of the company.

Consequences of breach of


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Consequences of breach of

duty

Section 132(1)

Fine or imprisonment or both

Common law duties

Company has civil remedies such as

compensation, damages for breach of

duty

C t


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Company secretary

See p 40, 33, 144

A dit


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Auditors

An auditor must be registered under the

Companies Actsec 8

Special rules apply to appoint or remove

auditors, which are designed to protecttheir independence from management :

sec 9

Auditors owe duties to the company, andmay owe a duty of care to others :

sec 174(1)

C L L t 16


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Share capital

Membership

Sh


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Shares

What are shares? (sec 4(1))

Classes of shares

generally

preference shares

Conversion of shares into stocksTableA (Art 36 - 39)

Wh t h ?


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What are shares?

Claims against a company to whichparticular rights attach, in particular:

distribution rights (interim and final)

control rights (eg information, voting)

A chose in actiona form of personal

propertysec 98

Not an interest in the companys assets

(compare with a trust)

Wh t h ? ( t)


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What are shares? (cont)

Borlands Trustee v Steel Bros & Co Ltd(nature of shares)

Cl f h


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Classes of shares

Shares can be created with different rightsattaching : sec 18(1)(c)

Power to issue shares in the hands of the

directors, but the issue of shares in a newclass may require shareholder approval if:

amendment to the constitution is required

the issue varies existing class rights Table A, Art 2

Classes of shares (cont)


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Classes of shares (cont)

Typically classes of shares have differing:

entitlement to dividends

priority in relation to payment of dividends

voting rights

priority in repayment of capital on a winding

up

right to share in surplus assets on a windingup

Contrast preference shares and ordinary

shares

Preference shares


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Preference shares

Usually carry:

fixed dividend

priority for repayment of capital

limited voting rights

no right to share in surplus

Membership


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Membership

A person can become a member bysubscribing for new shares, or acquiring

already issued shares from another

person A person ceases to be a member by

transferring their shares, or having them

cancelled

Shareholder rights


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Shareholder rights

Voting rights

Distribution rights

Information rights

Class rights

Variation of class rights (cont)


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Variation of class rights (cont)

Certain actions taken to vary class rights

Section 65(1): rights of dissenting

members where the variation, cancellation

or modification does not have unanimousconsent. Members holding at least 10% of

the class can apply to the Court for

change to be set aside & the change iseffective with confirmation by the Court.

When is sec 65 applicable?


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When is sec 65 applicable?

Section 65(1) requires that : The company has different classes of shares

The articles (eg. Art 4) or memorandum

provides for a method to vary the class rights The proposal is a variation


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Method of variation under sec


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65

Company must call separate classmeeting only of shareholders whose rights

are being affected by the variation

proposal At least 75% of these shareholders must

approve

What if sec 65 not applicable?


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What if sec 65 not applicable?

Variation procedure depends on where therights are stated

If the rights are given in the articles of

association: sec 31

If rights given in memorandum: sec 21(1B)

Introduction to members


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remedies

Members remedies may be availablewhere officers have breached their duties

But sometimes members can also obtain a

remedy even though there has been nobreach of officers duty

Members have statutory and common law

remedies

Introduction to members


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remedies (cont)

Why do minority members needremedies?

Directors and majority shareholders can use

their power to harm minority shareholders Not always possible for a shareholder to sell

their shares

This explains why the oppression remedy is most

commonly sought by shareholders in private

companies rather than public companies

Members statutory remedies


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Members statutory remedies

Oppression remedy

Court-ordered winding up

Statutory injunction Statutory right to inspect company

books

Other protection : Variation of class rights (Lecture 7)

Transactions affecting share capital

(Lecture 17)

Oppression remedysec 181


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Court can give a member a remedy

where : the conduct of the companys affairs or,

the directors powers are being exercised,

in an oppressive manner, or

in disregard of members interests includinghimself (181(1)(a))

OR

an actual or proposed act or omission by or onbehalf of the company, or

a resolution, or a proposed resolution, of membersor a class of members is either

unfairly prejudicial to, or

unfairly discriminatory against members

(181(1)(b))

Oppression remedy (cont)


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What types of companies can the remedyapply to ?

In theory, any company

But in practice, most oppression actions arebrought by members of private companies

which have only a few participants, and

in which members are also involved in

management



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What are the tests ? Was directors decision one that no board of

directors acting reasonably would have

made? Not necessaryfor directors / majority

shareholders to have acted dishonestly or

intended to harm the minorityit is a

question of impactis the conductoppressive in effect ?

Reasonable expectations



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Examples of oppressive conduct Diversion of business opportunities

Improper exclusion from management

Does member have a reasonable expectation?

Unfairly restricting dividends

Oppressive conduct of board meetings

Share issue for improper purpose Breaches of directors duties



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What orders can the court make ? Any order it thinks appropriate

e.g.

winding up regulating the companys affairs

purchase of oppressed members shares

appointment of a receiver

restraining someone from doing something, or

requiring someone to do something

Statutory injunction


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Statutory injunction

Court order to stop someone breachingthe Companies Act

Specific provisions : sec 132C , sec 132E

or sec 28. Who can apply ?

Any member of the company

Statutory right to inspect books


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Statutory right to inspect books

Section 157Member can apply to courtfor authorisation to inspect company

books

Court can authorise either the member ortheir representative

Member must be acting in good faith and for a

proper purpose

Foss v Harbottle


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Foss v Harbottle

Also known as the proper plaintiff rule

The person who can enforce a wrong

against the company is the company itself

and not any individual shareholder

Exceptions


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Exceptions

Where members personal rights areinfringed

Where the proposal requires special

resolution but passed by simple resolution Ultra virestransaction: objects clause

Where there is fraud on the minority

Where the justice of the case so requires

Fraud on the minority


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Fraud on the minority

There must be wrongdoer control Control may be because of majority

shareholding

The wrongdoer obtained benefit/advantage at the companys expense

The wrongdoer prevents the company

from suing or enforcing the companysrights

Company Law Lecture 8


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Company Law Lecture 8

Member meetings types of meeting

calling meetings

conducting meetings voting

Decision-making without a meeting

Procedural irregularities

Annual and extraordinary


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general meetings

All companies must hold an annualgeneral meeting: sec 143

All public companies must hold its

statutory meeting: sec 142(1) Other meetings are called extraordinary

general meetings

Rules governing meetings are set out inthe Companies Actand the articles ofassociation

Calling a meeting


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Calling a meeting

Usually, meetings are called by the board.Art 44 authorises a single director or board

collectively to call meetings.

The Court may order a meeting onapplication of a director or member if it is

impractical to call otherwise: sec 150

Calling a meeting (cont)


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Calling a meeting (cont)

Directors must call a meeting when requested todo so by members holding not less than 10% of

paid up capital: sec 144. If the directors fail to

call the meeting within 21 days, the members

can do so and the company must pay their

reasonable expenses

Two or more members with at least 10% of

issued share capital or 5% in number ofmembers may call a meeting, at their expense:

sec 145

Agenda


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Agenda

Only matters that have been included in thenotice of meeting can be considered at the

meetingother than matters stated in Art 46 ofTable A

Usually, where the directors are calling a

meeting, they will determine the agenda

Members can request the inclusion of

resolutions for consideration by the meeting:sec 151

Member resolutions


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Member resolutions

Section 151 allows members with at least 5% ofthe votes, or numbering at least 100, to give

notice to the company of a resolution they

propose to move at the next general meeting

held more than two months after the notice is

received

Copies of the resolution and a members

statement are distributed, usually with the noticeof meeting

Notice of meeting


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Notice of meeting

General rule14 days. Consent to shortnotice is possible: sec 145(3)

For passing special resolution: sec 152

(21 days) Notice must be given to members,

directors and auditor

Contents of notice: sec 152 and Art 46.

Notice of meeting (cont)


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Notice of meeting (cont)

Notice must contain sufficient informationto enable members to decide whether or

not to attend the meeting and how to vote

Must not be misleading, and must fullyand fairly inform and instruct the

shareholder about the matter on which he

or she will have to vote: DevereauxHoldings

Need to balance information presented:

Fraser v NRMA

Conduct of meetings


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Conduct of meetings

Quorum

Use of technology

Proxies and corporate representatives

Conduct (role of the chair)

Voting


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Voting

Members entitlement to vote Section 148(1)

Section 148(2): preference shareholders

Voting by proxies

Voting (show of hands and poll)

Demanding voting by poll

Ordinary and special resolutions

Disqualification from voting


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Disqualification from voting

Companies Act, articles of association andKLSE Listing Requirements prevent

interested parties from voting their shares

in certain circumstances, including: related party transactions

Interested director in relation to sec 131

Decision-making without a

ti


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meeting

Private companies may use shareholderswritten resolution, in which all members

entitled to vote must sign a document

agreeing to the resolution: sec 152A Formality may be waived by all members

under ratification

Section 145(3)

Procedural irregularities


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ocedu a egu a es

Section 355decision may be validdespite irregularitybut there must be no

substantial injustice

DEBENTURES


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What are debentures?sec 4(1) andsec 38(11)

A loan or advance to a company may be

secured or unsecured


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Fixed and floating charges


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g g

Definition of chargesec 4

Fixed chargesecurity over a specificasset (eg land). Company cannot dispose

of the asset without the consent of thelender

Fixed and floating charges

(cont)


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(cont)

Floating chargefloats over the assets,allowing the company to dispose of them

in the normal course of business and

replace them with others of the same classuntil crystallisation

Yorkshire Woolcomber Association

Floating charges


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g g

Companys power to give a floating chargeis contained in Art 13, Third Sch of the

Companies Act

Useful device enabling companies to givesecurity over trading stock and book debts

Free to deal with charged assets in the

normal course of business, untilcrystallisation

Crystallisation


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y

Charge crystallises automatically on thecompany ceasing to carry on business or

on winding up

Charge document may provide forcrystallisation on the happening of

specified events (events of default) eg

breaching debt/equity covenants selling a major asset

Crystallisation (cont)


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y ( )

On crystallisation, the charge effectivelybecomes a fixed charge over the assets at

that time and any later acquired assets


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The registration process


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g p

Company must lodge a notice containingprescribed information within 30 days of

creation of the charge : sec 108(1)

Provisional registration permitted, to allowfor stamping

What is stamping?

Notice of variation and notice ofsatisfaction and withdrawal

Priority


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y

A company may create two or morecharges

Priority refers to the order in which the

charges are satisfied Order of registration determines priority for

registrable charges

Note that priority can be altered byagreement between the chargees

Priority (cont)


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y ( )

Generally give priority to the firstregistered charge, unless the chargee had

actual or constructive notice of an earlier

unregistered charge : common lawprinciples

Does not affect priority as between

registered and unregistrable charges

Unenforceable charges


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The Companies Actmakes somecharges unenforceable

Charges that should be registered, but

are not, cannot be enforced against aliquidator or creditors

Certain other charges created within six

months of winding up in insolvency :sec 294

Effect of floating charge

Winding up


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Involves a liquidator selling offcompanys assets and distributing the

proceeds among creditors (and members

if any surplus remains) Also known as liquidation

Provisional liquidator


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A process where the company is brought to an end, andthe assets and property of the company areredistributed.

DEREGISTRATION-CO MUST HAVE NO DEBT(REASONS-NO BUSINESS, NOT ACTIVE)

VOLUNTARY WINDING UP-A RESOLUTION PASSEDIN AGM-(REASONS-NO BUSINESS, NOT ABLE TOPAY ITS DEBT, DIRECTORS ONLY CONCERNEDWITH PERSONAL GAINS AS OPPOSED TO THEMEMBERS). A LIQUIDATOR IS APPOINTED TO

ASSESS/COLLECT/SELL/CARRY OUTINVESTIGATION AND PAY CREDITORS DEBT.


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CREDITORS WINDING UP-IF IN THE VOLUNTARY WINDING UPCREDITORS FEEL THAT COMPANY IS INSOLVENT,CREDITORS CAN CALL CREDITORS MEETING AND WINDINGUP NOW BECOMES CREDITOR WINDING UP.

COURT-ORDERED WINDING UP-BEGINS WITH COURT ORDERON THE APPLICATION OF ONE OR MORE PARTIES.PETITIONER MUST ESTABLISH THE COMPANY IS INSOLVENT-

EG FAILURE TO MEET STATUTORY DEMAND (DEBT MORETHAN RM 500-THE FORM IS SERVED ON THE COMPANY BUTTHE COMPANY FAILED TO PAY IN 3 WEEKS TIME)-SEC 218. ALIQUIDATOR IS APPOINTED OR IF NOT THE OFFICIALRECEIVER BECOMES LIQUIDATOR. CAN BE APPLIED BYCOMPANY, CREDTORS ETC.

Types of winding up


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Voluntary winding up (sec 254) Members voluntary winding up : sec 4(1) and

sec 258 - 263

Creditors voluntary winding up : sec 260 -263 (Part X, Division 3)

Compulsory winding up (Part X, Division 2

sec 217) In insolvency

On another ground

Voluntary winding up


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Members voluntary winding up Only possible for solvent companies

Commences when members pass a special

resolution declaration of insolvency

Creditors voluntary winding up

Similar to members voluntary winding up,except that the company is insolvent

Compulsory winding up in

insolvency


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insolvency

Begins with a court order Company must be insolvent

Unable to pay debts as and when they

become due and payable: sec 218(2)(b) Most common way to prove insolvency is via

the statutory demand procedure

Who can apply to court? (sec 217(1)(a)-(g))

Several people, but most often it is a creditor

Compulsory winding up on

grounds other than insolvency


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grounds other than insolvency

Grounds are set out in sec 218eg: Company has not commenced business

within one year from incorporation

Just and equitablesee Lecture 16 Who can apply to court?sec 217(1)(a)-

(g)

Several people including creditors andmembers

Effect of a winding up


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Secured creditors rights unaffected Other creditors cannot take action

Company cannot carry on business except

for the purposes of the winding up

Company management by the liquidator,

not the directors

Liquidators functions


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Collect assets Realise assets

Work out what debts are payable by

company, and what is owed to thecompany

Distribute proceeds of realised assets

among creditors If any surplus, distribute among members

Liquidators duties


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Specific duties under the Companies Actsec 227, sec 233, sec 235 and sec 281

Fiduciary duties

Duties as an officer sec 4

Funds available for distribution


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Assets owned by company at time ofwinding up, excluding any charged assets

Assets that come into companys

ownership after winding up starts, eg: Compensation recovered under insolvent

trading provisionsec 304

Funds recovered by liquidator under voidabletransactions provisions

Funds recovered from holders of void charges

Voidable transactions


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Certain transactions entered into in periodleading up to winding up

Liquidator can apply to court to have a

voidable transaction undone so thatfunds available for distribution are

increased

Void charges


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Certain floating charges created shortlybefore winding upsec 294

Unregistered chargessec 108(1)

How are funds distributed?


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The general order is: Secured creditors, then

Expenses of winding up, then

Unpaid wages, unpaid superannuationcontributions, and other employee

entitlements, then

Unsecured creditors, then

Members (assuming there is a surplus)

Deregistration


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Deregistration brings companysexistence to an endsec 308

Three types:

Deregistration following winding up : sec

240

Voluntary deregistration : sec 272

Deregistration initiated by ROC : sec 308

Eff f d i i

36008500 Nota Terkini Company Law

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Transcript of 36008500 Nota Terkini Company Law