Learning outcome

To describe what is MOA & AOA To describe how it could be altered

MEMORANDUM & ARTICLES OF ASSOCIATION

Basic document to be lodged to the ROC Secs 18, 34; External regulation

Memorandum of Association

“ The memorandum contain the fundamental condition upon which alone the company is allowed to be incorporated. They are conditions, introduced for the benefits of the creditors and the outside public, as well as the shareholders”

Bowen J

Sec 18 (1) (b); every company must state the objects of the company in its MOA

Object – purpose which the company is form to achieve

Object will include power Power – authority to achieve the object -Third Schedule or Sec 19 (1).

Object Clause

F: ‘Object’ – to acquire the undertaking of two existing railway company and to construct and run certain railway.

Issue: Whether the hiring of locomotives and rolling stock to another company – within the object clause.

AG V Great Eastern Railway

H: Within the object clause

The power to hire locomotive and rolling stock can be implied by the object to construct and run certain railway.

When a company indulges in activities which are not authorized by the object clause.

Under the English law any contract which is ultra vires would be : VOID ABINITIO & CANNOT BE RATIFIED

Doctrine of Ultra Vires

F: Object – to make, sell, lend or hire railway plant, fittings, machinery, and rolling stock; to carry on the business of mechanical engineers and general contractors.

Directors entered into a contract – to purchase a concession to construct a railway. Then refused to proceed. Vendor of the concession brought an action.

Ahsbury Railway Carriage & Iron Co V riche

H: The construction of railways ultra vires the object of the company. Thus, the contract was void.

The company was not liable for breach of contract. Even if the shareholders agree, they cannot ratify the contract.

Sec 20 (1) – VALID However, the doctrine would be applicable: Sec 20 (2) (a); in proceeding by a member

against the company. Sec 20 (2) (b); in proceeding by the

company/member against present or former officer of the company.

Sec 20 (2) (c), in winding up petition by the Minister.

Position in Malaysia

F: D Co. created 2 charges in favour of the P Bank for the loan given to the third party.

Default in payment. P Bank proceed for an order of sale of the land.

D Co – the charges was ultra vires its MOA

H: Not ultra vires. Even though ultra vires, it could be saved by Sec 20 (1) (chan koh 144-45)

Public Bank Bhd v Metro Construction Sdn Bhd

Sec 21 – The MOA maybe altered in the manner provided by the Act and not otherwise.

If the Act is silent, cannot be altered Sec 154 – Any change must be lodged to

the Registrar.

Alteration of MOA

Sec 23 – change name Sec 25 & 26 – public to private; vice versa Sec 28 – object Clause Sec 62 – share capital Alteration requires special resolution or

ordinary resolution

Provisions which allow for alteration

Regulate to the company’s internal affair Table A of Fourth Schedule is the specimen

of AOA – Sec 31 (2). Subordinate to the MOA General content; matters concerning of

shares, general meeting, directors…

Article of Association

Sec 31 (1) A company may be a special resolution add,

vary, amended or altered the AOA MOA may restrict the ability of a company

to alter its AOA. However there cannot be any provision in

the AOA which provides that an article is not alterable.

Alteration of AOA

(1) Bona fide for the benefit of the company as a whole.

Allen v Gold Reefs of West Africa Ltd Lindley, M.R: “the statutory powers to amend the article

must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole”

Principles of alteration

F : The D Co altered the AOA by introducing a provision which gives the directors power to buy out at a fair price the shareholding of any member who competed with the company’s business.

Sidebottom v Kershaw Lease & Co

Evershed MR: Bona fide benefit for the company as a

whole…means that the shareholder must proceed upon what is honest opinion is the benefit of the company as a whole….and the company as whole does not mean the company as a commercial entity distinct from the corporators but it means the corporators as a general body

Greenhalgh v Ardennes Cinema Ltd

F: D Co altered its AOA which introduced a power enabling the majority shareholders to require any member to transfer his share at a fair value to an approved transferee.

Dafen Tinflate Co Ltd

H: The alteration was void. Power conferred by the alteration was far

wider than necessary to achieve the purpose of protecting the company from undesired shareholder.

Paterson J: Alteration is for the benefit of the majority

members, not for the benefit of the company as a whole.

Brown v British Abbrasive F: A company was in dire need of further capital

injection. The majority shareholders who controlled 90% of the shareholding were willing to inject capital into the company if the could buy up the remaining shares of the minority. The company altered its AOA so that the majority shareholders may require any other shareholder to sell his shares to them. Certain members of the company object the alteration.

(2) Alteration will not oppress the minority

H: The alteration of the AOA to allow the majority shareholders to expropriate the shares of minority shareholder was not for the benefit of the company as a whole.

Therefore, it is void.

Restriction by the MOA Private Company – Sec 15 When there is classes of shares -Sec 65, alteration of class rights could only

be done upon consent of the specific proportion of the shareholders of that class.

In case of private company when the shares are closely held-rare case

Restriction for the alteration of AOA

H: The proposed alteration of the AOA was null & void as it infringed the rights and privileges given to some individuals on the formation of the company

Pang Teng Fatt v Tawau Transport Co Sdn Bhd

Sec 33 (1):- MOA and AOA contained covenants and

provisions which each members are bound to observe.

Therefore, MOA and AOA constitute a contract and bind the members as well as the company.

Effect of MOA & AOA

-The company and members can take action against one another when either of them failed to comply with the MOA and AOA.

Case: Hickman v Kent

(1) Contract between the company and its member

F : AOA – Any dispute should be referred to arbitration.

H: brought action to court complaining some irregularities in the company.

Defendant rely on the article to prevent H’s action.

Hickman v Kent

However, a member acting in the capacity other than a member cannot enforce the MOA and AOA.

Case : Eley v Positive Govt Life Assurance Co.

F: In AOA – E was the permanent solicitor and could be dismissed for misconduct. Later he became a shareholder. When the company terminated his employment, E sued the company for breach of contract.

Eley v Positive Govt Life Assurance Co

H: Action failed. The article did not create any contract between E (as a solicitor) and the company.

The article conferred no rights on a member who seeks to enforce a right in a capacity other than a member.

Member can bring action against another member for the enforcement of MOA and AOA.

(2) Contract between members

‘The MOA and AOA constitute a contract between the members inter se. Every member has a personal right to have the terms of the MOA and AOA observed. Action may be brought directly against the other members and the company does not have to be joined as a party’.

Lim Beng Hin & ors v Lim Beng Sung

Co has 2 shareholders. AOA – allow the maj. Shareholder to purchase the shares of another shareholder.

H: The article which empowers the requisition of shares of the only shareholder is not repugnant to the Companies Act. It was purely a matter of contractual obligation.

Wong Kim Fatt v Leong & Co Sdn Bhd

F: Article – Every member who intends to transfer shares shall inform directors who will take the shares equally between them at a fair value.

Directors refused to purchase the shares. R, the shareholder, took action.

Rayfield v Hands

-outsiders cannot enforce the provisions in MOA and AOA.

Ashbury J ‘…no article can constitute a contract between the company and third party’

(3) Not a contract between the company and outsiders

F : P – Lessee, D – lessor of the land; in P’s AOA –Lessor has power to appoint a director of the company.

Lessor – appoint itself as the director P claimed that the appointment was invalid.

Raffles Hotel Ltd

H: Appointment was invalid because the D was not a member.

‘There is nothing in the article which confers such right on the defendant since the defendant was not a member of the company’.

However, to bind the company, the outsider should have a separate contract with the company which incorporate the terms of AOA.

In such situation, any alteration of AOA must not breach the contract otherwise the outsider may sue the company.

F: By written agreement, Resp was appointed as MD by SFL for 10 years. 3 years later SFL was taken over by FFL and altered SFL articles with empower FFL to remove any company director.

FFL removed Resp from the directorship. Resp sued for breach of contract.

H: Reps was entitled for damages.

Southern Foundries Ltd V Shirlaw