Last post - Just and equitable ground for court to wind up company

The court may order to wind up the company under just and equitable ground. (section 281(i))

1. The court has wide discretionary power.

2. The court can wind up the company as it thinks fit.

Example of just and equitable ground:

1. Breakdown of trust and confidence

• Especially for company that evolves from partnership
• Lawrence v. Lawricks Motors Ltd- The company is controlled by 2 families. Director 1 commit adultery on Director 2's wife.
• Tay Book Choon v. Tahansan- Director remain as director as long as shares are held by him

2. Deadlock

• Shareholders are deadlocked to the extent that company cannot function well.
• There must be a clear deadlock- Re Davis investment (West Ham)
• No deadlock if there is chance of reconciliation- Ng Eng Hiam v. Ng Kee Wei
• 2 Directors holding same proportions of shares. Re William Brooks & Co Ltd

3. Fraud on minority shareholder

• Director showed lack of fair conduct in managing co. affairs- Lock v. John Blackwood
• Director made unauthorized payment from company's fund- Re William Brooks & Co Ltd

4. Failure of substratum

• Company ceases business after it commenced business. Re Eastern Telegraph Co Ltd
• Not valid if only part of the main object failed- Re Kitson & Co Ltd

Examine and analyse the scope of minority shareholders under s.181 of CA 1965.

Section 181 provides remedy for cases of an oppression.

Any member or debenture holders can apply to court for an order under his act on the ground

1. The powers of directors are exercised oppressively to members or debentures holders or disregard their interest

2. Act/resolution are conducted unfairly discriminatory/prejudicial to members or holders of debentures.

Cases of oppression are determined objectively based on situation - Low Peng Eng v. Low Janie

It is based on various principles where various principles are taken into account.

Meaning of oppression is defined in common law as:

1. Unfair abuse of powers- Elder v. Elder & Watson Ltd

2. Burdensome/harsh/wrongful- Scottish Co-operative Wholesale Soc v. Meyer

3. Shareholders must have suffered harm not mere intention of motive- Re H R Harmer Ltd

4. Visible departure from standards of fair dealing- Re Kong Thai Sawmill (Miri) Sdn Bhd

5. Shareholders must have suffered harm- Re A Co.

Wider meaning of oppression

1. Unjust and damaging the rights between one another- Re H W Thomas Ltd

2. Not according to standards of fair dealing- Jenkins v. Enterprise Gold Mines NL

Cases of oppression

1. Co is run like a sole trader - Re Bagot Well Pastoral Pty Ltd

2. Co not declaring dividends when there are profits- Re Cast Iron Products

3. Decision to override interest- Re Kong Thai Sawmill (Miri) Sdn Bhd

Cases of unfair discriminatory/ prejudice

1. Making discriminatory rights issue- Re A Co

2. Exclusion of directors entitled to manage business- Victor Lau Man Hing v. Eramara

3. Improper allotment of shares in breach of pre-emption rights- Re DR Chemicals Ltd

4. Taking excessive management fees.

5. Diverting business opportunities- Re London School of Electronics Ltd

6. Payment of inadequate dividends- Re Sam Weller & Sons Ltd

Remedies available

1. Obtain court oder to regulate future conduct of corporate affairs.

2. Order majority shareholders to purchase their shares.

3. Court can cancel/prohibits a resolution/act.

4. Court order to wind up the company.

5. No remedy available if DH/SH had collateral purpose (Re Ballador Silk Ltd)

Majority Control & Minority Protection - Discuss legal effects of Foss v. Harbottle and its exceptions

Foss v Harbottle

1. Proper plaintiff rule - Actions can only be brought by the company because wrong is done on the company not its members.

2. Internal management rule- Court does not want to interfere company internal management. Pointless for minority shareholders to bring an action if majority shareholders can ratify a wrong.

Advantages:

1. Prevent multiplicity of actions.

2. Minority shareholders do not have enough resources to bring an action.

3. Company should be run according to the will of majority shareholders.

4. Conflicts should be resolved internally and according to A/A.

5. Court does not want to interfere the internal management of company.

6. Company is an entity separated from its members, creditors and employees.

Disadvantages:

1. The wrongdoers are usually directors that normally are the majority shareholders therefore they can prevent the company from bringing action against them.

2. Company is managed on majority shareholders' will, disregard minority will.

3. Limiting shareholders rights.

4. Limited exceptions for minority shareholders to bring an action

5. There can be a misuse of powers for directors.

There are some exceptions to the general rule- Russell v. Wakefield Waterworks Co Ltd

1. Act is ultra vires - Simpson v. Westminister Palace Hotel Co.

2. Act/Resolution require special majority but do not obtain- Edward v. Halliwell

3. Act infringes shareholders' personal rights- Pender v. Lushington

4. Majority shareholder commit fraud on minority shareholder- Burland v. Earle

5. Where interest of justice is so requires- Tan Guan Eng v. Ng Kweng Hee & Ors

6. Minority shareholder must prove that there is a fraud- Peter's American Delicacy Co Ltd v. Heath

7. Example: Expropriation of company's property- Menier v. Hooper's Telegraph Works

8. Example: Expropriation of member's property- Brown v. British Abrasive Wheels Co.

Proceedings of Meeting - notice of meeting, resolution, quorum, chairman, minutes, voting, and proxy

Detail explanation regarding general meeting

Link to securities commission resource

http://www.sc.com.my/eng/html/resources/inhouse/shareholders.pdf

Notice

1. Must be sent to all members within 14 days or 21 days if a special resolution is to be passed.

2. If a shorter notice is to be sent, it must obtained at least 95% of agreement from members who are entitled to vote.

3. 2 or more holders of not less than 10% of voting rights can petition to court to cancel any alteration.

4. Special notice- Send to all members within 28 days.

Matters requiring special notice:

a) Appointment or removal of auditor

b) Appointment or removal of directors.

c) Appointment or retention of public company's director aged 70 or over.

5. The meeting can be held at anywhere in malaysia, can via technological means. section 145A

6. Meeting valid if accidental omission of notice. S145(5)

7. Meeting invalid if deliberate/mistaken belief that SH not entitled to attend meeting. (Musselwhite v. CH Musselwhite & Son ltd)

Quorum

1. Quorum are required number of members to have meeting.

2. A/A can provide for any number.

3. At least 2 SHs must present unless A/A provide otherwise. S147(1)

4. Meeting valid if it is wholly owned by 1 member.

5. Court may allow one member to constitute a quorum. S150

6. Article 47 Table A- Quorum is required for commencement of meeting

7. Waiting time is 1/2 hour.

Chairman

1. Chairman of board of directors will chair the meeting.

2. Chairman preside over a meeting- Chairman of the board

3. Duty to keep the meeting in order- CM has no right to adjourn meeting.

4. Shareholders can appoint a shareholder if no one is willing to act as chairman or chairman late for more than 15 minutes. Art 49

Minutes

1. Company must keep minutes of general meeting at registered office.

2. Chairman signs the minutes and it will then become a prima facie evidence.

Voting

1. Vote by hands unless stated otherwise.

2. Each shareholder has 1 vote regardless of shares.

3. However, shareholders' right to demand for a vote by poll cannot be exluded. Section 146(1)

4. Article 51 provides change to vote by poll by vote of hands by chairman, at least 3 members present by person or proxy/ holders of not less than 10% present by person or proxy.

Proxy

1. Need not to be a member.

2. Can vote by hand unless there is provision in A/A that prohibits this.

3. Has the right 2 speak in the meeting.

4. Can only vote by poll if stated .

5. Members that can't present can appoint not more than 2 proxies with specified proportion of shares represented by each proxy, failure to do so will invalidate the appointment.

Resolution

1. Ordinary resolution- requires 50%+1 vote

2. Special resolution- requires 75% majority

3. Circulative resolution- requires unanimous agreement by all members

4. Elective resolution- for private company to make election dispense with AGM. Procedures are the same with special resolution.

Company Meeting - Statutory Meeting (SM)

Statutory meeting is compulsory to be held by public listed company. Company must convene SM not less that 1 month and not more that 4 months after its incorporation and commencement of business. It is deemed to have commenced its business after prospectus is approved by KLSE.

Directors must send statutory report seven days before the meeting, and the report must be signed by at least 2 directors. section 142(3).

Contents under section 142(3)

1. The total number of shares allotted and for which they have been allotted.

2. Receipts in respect of all the shares allotted.

3. Receipts and payments for at least seven days of the report and the preliminary estimation of expenses and balances in hand.

4. Directors' name and addresses.

5. Any particulars of proposed contract.

Company Meeting- Annual General Meeting (AGM)

Company must convene AGM within 18 months after it is entitled to commence business and annually not more 15 months from preceding meeting. If no AGM, shareholders can apply to court- section 143(4). It is compulsory to do so, otherwise officers might found guilty against this Act.

Section 169

1) Appointment of auditors

2) Fix remunerations of auditors

3) Election of directors

4) Profit/loss account

5) Auditors report

6) Directors' report

7) Balance sheet

8) Declaration of dividends ( Table A- Art 98)

Company Meeting - Extraordinary General Meeting(EGM)

Table A Article 43 of Article of Associations defined EGM as a general meeting other than AGM. Board of directors has powers to call for a EGM- Article 44 Table A. 2 or more members holding at least 1/10 of total voting shares can requisite BOD to convene an EGM- section 144(1). Then BOD is required to convene the meeting within 21days of requisitions.

Under section 145(1) If BOD did not convene the meeting, shareholders can hold the EGM within 3 months of requisition, but the expenses incurred for the meeting shall be bear by shareholders. Therefore, this section is rarely been used by members. The calling of EGM by members must be for a proper purpose- Humes Ltd v. Unity APA co Ltd. Notice must be sent to members within 14 days.

If a special resolution is to be passed by members, it must be in writing and sent to all members within 21 days of EGM. Court can order for a GM if it is impracticable to call for a meeting, eg: lack of quorem, refusal by directors and non-attendance. (Leong Ah Hong v. Hup Seng Co. Ltd)

Distinguish between shareholder and debenture holders

1. Shareholder has interest in the company; debenture holder has interest against the company.

2. Shareholder(SH) is a member of the company; debenture holder(DH) is a creditor of the company.

3. Shares can't be issued at discount; debenture can be issued at discount.

4. SH has voting rights; DH has no such rights.

5. Return of capital to DH is obligatory to the company; return of investment to SH is subject to availability of capital.

6. Interest can be paid out of capital; dividend cannot be paid out of capital.

7. DH receive interest regardless of available profits; SH receive dividends from distributable profits.

8. Interest of DH can be paid out of capital; dividends must be from profits.

9. SH can challenge BOD for not issuing shares to raise capital; DH cannot challenge BOD if no debentures were issued.

10. Shares cannot be converted to debentures; debenture can be converted to shares, provided that it is convertible

11. Debentures can be transfered freely by DH; Shares can be transfered subject to BOD's approval.

Discuss legal justifications regarding charges

Charges are security created in favour of creditors. There are two types of charges which is fixed charge and floating charge.

Fixed charge is attached to specific property, identifiable and creditors consent are to be obtained for disposal of object of fixed charge. Floating charge is attached on company's future and present assets. It changes during the company's ordinary course of business, and company can only dispose the assets after they are crystallized.

According to section 108, charges must be registered in order for subsequent creditor to have knowledge of the previous charges created on the property. It must be registered within 30 days of its creation(Re Esberger & Son Ltd v. Capital and Countries Bank), failure to comply might be found guilty against section 110. It must be registered by interested party, either company or the creditor. If not, charges are invalid, creditors become unsecured. However, creditor can apply to court for late registration but subject to court's approval -section 114.

First in creation prevails- Re Benjamin Cope & Sons Ltd .If fixed charge(FC)1 v FC2, fixed charge 1 prevails provided that it is created and registered first. Unreg1 v. reg2- Reg2 prevails unless creditors of reg2 has actual constructive notice of existence of unreg1. As what is observed in United Malayan Banking Corporation Bhd v. Aluminex (M) Sdn Bhd, fixed charge has higher priority than floating charge unless floating charge is supported by a negative pledge clause(Re Valletort Sanitary Steam Laundry Co Ltd) and it is registered(Re Siebe Gorman Co Ltd v. Barclays Bank)

Summary:

FC1 v FC2= FC1 (First in creation prevails)

FC2 v FLC1= FC1 (Fixed charge has higher priority over floating charge)

Unreg1 v Reg2= Reg2 (Registration prevails, unless reg2 has constructive notice of unreg1)

Registered FLC1 v. Unregistered FC1? =Maybe it's registration FLC1

FLC1 v. FC1=FLC1 if supported by negative pledge clause.

Share buyback

Company is bound to maintain its share capital as a source of payment to creditors and shareholders' expectations that capital will be used for object of company.

Section 67(1) provides that a company cannot purchase its shares unless:

a) It is a redeemable share

b) It is share buyback. For public listed companies through stock exchange.

A company buy back its shares for the following reasons:

1. Capital mobility

2. Shares price is undervalued

3. Defense for non-beneficial takeover

4. Company has greater control over its equity.

Company required to comply with the procedures in Section 64(1):

1. Authorized by A/A

7. Pass an ordinary resolution

2. Make necessary announcement.

3. Make through stock exchange

4. Directors make declaration to the effect.

5. Shares buyback must involve less than 10 percent of total issued and paid up capital.

6. Company is solvent and will not become insolvent.