Memorandum of Association (MOA ) s. 16 – every company incorporated must register the MOA.

1. Memorandum of Association (MOA) s. 16 – every company incorporated must register the MOA. S. 16(8) may refuse if the company is (a)likely to be used for unlawful purposes or any purpose prejudicial to or incompatible with peace, welfare, security, public order, good order or morality in Malaysia; or (b) prejudicial to national security or public interest

2. Basic contents of MOA: • Name; • object; • amount of share capital [com. limited by share]; • limited liability clause [co. limited by share]; • limited liability clause and the agreed contribution [com limited by guarantee]; • unlimited liability [unlimited com]; • full name, address & occupation of subscribers; • the subscribers desire of being formed into a company; if com. limited by share their agreement to take the shares set out for them.

3. Name of the first directors of the company [at least 2]. S. 16 (7) • Name of the first secretary – no inclusion can be registered but the ROC may require resubmission (s.11(8) MOA- once registered constitutes contract bet the company and the members and among members (s.33(1))

4. MOA alteration – according to the CA not o/wise???? = alter the clauses prescribed by the CA. Others unalterable [ss.23,25,26,28,62,64] Since August 1996 – voluntary clause can be altered - s. 21(1A) Special resolution - alter/delete the voluntary clause. Useless if the MOA expressly prohibit its alteration or deletion or it involves the class rights of members. w/in 14 days lodge the alteration with the ROC- failed an offence company & officer – RM1000 default penalty

5. Objects clause s. 18(1) (b) object clause must be stated in the MOA Specific & general objects e.g. “to carry on any other business whether manufacturing or oterwise as the company may deem expedient” [HA Stephenson & SON Ltd v Gillanders Arbuthnot & Co] Use – to define the capacity of the company Important – to determine whether the company had acted ultra vires Effect –void ab initio, cannot be ratified (common law) vs [s. 20(1)]

6. Purpose- two protects the subscribers – knows what field shall his investment be put at risk; Protects those who deal with the company – know the company’s capacity and power to contract Alteration – special resolution (s. 28) 21 days notice – members, trustees to debenture holders / debenture holders. ¾ majority present and voted [special resolution]

7. 21 days grace period – to object to the alteration – [ss. 28(5)(6)(8)] Application by i- holders of ≥10 %in the aggregate in nominal value of the company's issued share capital or any class of that capital or, ii- if the company is not limited by shares, ≥ 10% of the company's members; or iii- holders of ≥10 %in nominal value of the company's debentures

8. Pls see types of shares at http://www.klse.com.my/website/bm/products_and_ser vices/index.html Lodge a copy of the alteration with the ROC – w/in 14 days after the grace period/ after the application has been determined by the Court [s.28(9)] Alteration –effective after lodgment s.28(10)]

9. Object Clause & Ultra Vires Doctrine Ultra vires – literally means beyond the power Legally it refers to the acts of the company which is beyond its capacity. Capacity – looked at the object clause Rolled Steel products (Holdings) Ltd v British Steel Corpn & Ors i- To be ultra vires a transaction has to be outside the capacity of the company, not merely in excess or abuse of power of the company.

10. ii- to determine whether the transaction is ultra vires, regards shall be had to the true construction of the MOA. If the transaction falls w/in the object of the company as oppose to being a proper exercise of powers, the transaction is not ultra vires. Common Law- ultra vires act = void

11. Malaysian Law s. 20 CA - Ultra vires act = valid Bumiputra Merchant Bankers Bhd V Supreme- QBE Insurance Bhd (1)   It was unarguable that the defendant had the capacity and power to enter into the letter of indemnity as it was doing something within the ambit of its objects as set out in the memorandum of association. In any event, s 20(1) of the CA 1965 abolished the effect of the ultra vires doctrine.

12. However; i- ultra vires may be relied on as a ground by any member of the company, debentures holder/s or trustee for the holders of those debentures in a proceedings against the company to restrain the doing of any act or actsor the conveyance or transfer of any propertyto or by the company ii-any proceedings by the company or by any member of the company against the present or former officers of the company; s. 132, or

13. iii- by minister in a petition to wind up the Company. S. 217 s. 20(3) allows the company to restrain the performance of ultra vires act. • All parties to the contract must be parties to the action • Court may if it is Just and equitable set aside the contract, restrain the performance of the contract, may allow compensation to any party to the contract for loss or damage sustained because of the avoidance of the contract –but do not include anticipated profits

14. Power clause See s. 19 and sch 3. Arab Malaysian Finance Bhd V Meridien International Credit Corporation Ltd London Object = purpose for wh. the company was Formed while Power = given to the company to enable it to carry its primary objects

15. Articles of Association (AOA) Regulate –company’ internal mgmt & operation Alteration - s. 31 – by special resolution - subject to CA & MOA Alteration binds all members including who disagreed with the changes – exception s. 33(3) Must be bona fide for the benefit of the company Allen v Cold Reefs of West Africa Ltd Members to decide what are considered as in the interest of the company

16. O/wise considered as fraud on the minority – s.181 Conflicts bet MOA AOA – MOA prevails Solaippan & ors v Lim Yoke Fan & ors Table A is only a specimen wh.can be adopted by Company If a company registered its own AOA and conflicts with Table A, the registered AOA prevails Company limited by shares need not registered its own AOA – in wh case Table A Sch 4 will be adopted as its AOA. See s 30

17. Effect of MOA & AOA s.33(1) i-Statutory contract between company and members; and ii-Statutory contract between members; but iii-No contract between company and outsider i-contract between company & members qua members = company and members in their capacity as members of the company

18. Hickman v Kent or Romney Marsh sheepbreeders’ Association KRM’s AOA provided – dispute between members and association should be referred to arbitration. Hickman initiated an action against KRM alleging various irregularities relating to and arising out of the def’s affairs. Def. applied to stay the proceedings under the English Arbitration Act. Q- was the member bound by the AOA? Held-the member was bound by the AOA to submit the dispute to arbitration

19. Eley v Positive Government Security Life Assurance Co. Company’s AOA, drafted by Eley provides that Eley was to be the company’s permanent solicitor and could only be dismissed for misconduct. He acted as solicitor for sometimes w/out entering into any employment contract. Eley held shares in consideration of his work in the incorporation of the company. The company then employed another solicitor. Eley sued the company.

20. Q- can Eley as a solicitor sue the company? Held- articles confers no rights on a member where the member seeks to enforce a right in a capacity other than as a member. Eley was seeking to assert his right in his capacity as solicitor. In order to do so, he should have entered into a separate contract independent of the articles. Members cannot enforce provision in the articles which give them rights in capacity other than members

21. ii-Contract between member inters se. Wong Kim Fatt v leong & Co. Sdn Bhd Company has two s/holders. AOA provides “ the holders … of seven-tenths of issued capital … may at any time serve the company with a requisition to enforce the transfer of any particular shares not held by requisitionists…” Exercising his power under the AOA the 2nd def. requisitioned for the purchase of Wong’s shares. Wong resisted. Q- can Wong prevent the enforcement of the article?

22. Held: there was a contractual obligation between the company and its members and the plaintiff must be held to the obligations he had undertaken iii- company and outsider MOA & AOA do not bind the company and Outsiders/ the members and outsiders Malayan Banking Ltd v Raffles Hotel Ltd Part of a property known as Raffles Hotel was leased to A for 70 years. The lease was assigned to MB. Art 77 of Raffles Hotel allowed the lessors

23. to appoint themselves or one of them or any other person to be a director of the company. MB appointed itself as director of Raffles. Raffles sought a declaration that the appellant bank's appointment as a director pursuant to article 77 was invalid Q- Did art. 77 give MB power to appoint itself as director?

24. Held- (1)   the art of R do not as between R and a person who is not a member constitute a contract of which that person can take advantage and art. 77 of R did not contractually bind R to an outsider; (2)   MB being an outsider, could not take advantage of a power purporting to be given by art. 77 and therefore MB’s appointment of itself as director of R in exercise of such power had no legal effect.

25. h/ever, the articles may become terms of contract between company and outsider- expressly or Impliedly. Re New British Iron Co. ex parte Beckwith Articles of the company provided that remuneration of the directors should be the annual sum of £1,000. directors were employed and accepted office based on those articles. There was no express agreement concerning the remuneration. Directors acted as directors but did not receive remuneration.

26. Company went into liquidation and directors claimed for arrears of fees on the basis that a contract incorporating the terms of the articles was to be inferred. Q- Did the articles constitute the terms of their appointment? Held- where on the footing of that article the directors are employed by the company and accept office the terms of the articles are embodied in and form part of the contract between the company and the directors. Under the article as thus embodied the directors obtain a contractual right to an annual sum of £1000. as remuneration

27. Because the articles do not constitute contract bet. company and outsider, company can alter the articles any time it wishes. H/ever, the alteration may affect the existing contractual relationship with an outsider. Southern Foundries (1926) Ltd v Shirlaw S appointed MD of SF for 10 yrs via written agreement. 3 yrs after the appointment SF was taken over by Federated Foundries. FF as s/holder amended article of SF giving itself power to

28. remove SF’ directors. Relying on that power FF removed S. S sued for breach of contract. Q- was there a breach of contract? Held- although company may alter its articles, but it cannot justify breach of contract by that alteration. It was an implied term of the contract that SF would not by any alteration of its articles create any right to remove S from his position as director.

29. Effect of alteration on contract Swabey v Port Darwin Gold Mining Art of the company – directors will be paid £200 per annum. The company altered the articles reducing the payment to £ 50 per annum. S resigned and sued for 3 months arrears at the old rate. Q- was there a valid alteration? Held- valid alteration but effective prospectively.

30. The principles laid down in the cases: i- that no articles can constitute a contract bet a company and 3rd person; ii- No right merely purporting to be given by an article to a person, whether a member or not, in a capacity other than a member, as, for instance, a solicitor, promoter, director, can be enforced against the company; and iii- articles regulating rights and obligations of the members generally as such do create rights and obligations bet them and the company respectively

31. Company and agency rules Legal person= cannot act except through the agency of natural person. Company has two organs – members and BOD Their acts are considered as company’s act. In most instances, these two organs delegates the power to others- example MD, etc. The company as principal – bound by the act of the authorised agent.

32. Agent’s authority 1- Actual express implied 2- Apparent / ostensible authority 1- Actual authority – company and agent entered into consensual agreement -Expressoral written (MOA/AOA/BOD resolution/GM resolution). e.g. art 93 -Implied - to be understood from the circumstances

33. e.ghis position is an MD – to do anything reasonably incidental to the conduct of the ordinary business of the company such as: -executing BOE, -receive repayment of debt, -to borrow money and give security for the debt on -behalf of the company, -institute legal proceedings, -contracting, -execute -guarantees on the company’s behalf etc.

34. Hely-Hutchinson v Brayhead Ltd & anor R c/man of B. He often contracted on behalf of B without the knowledge of the board until late when he reported the matter. The board knew of the action and acquiesced in that. Plf - chairman and managing director of P. Plf gave personal loan £50,000 to P. Later Plf became director of B. Plf met R – R promised that B will provide guarantee if Plf give loan to P. B will also indemnify Plf for the loss of the personal loan. Promises were written on B’s paper.

35. P went into liquidation. Plf. sued B on the promises. Q- was R an agent of B? Did he possess the necessary authority to bind B to the promises? Held-R had actual authority, to be implied from the conduct of the parties and the circumstances of the case, to enter into the contracts with the Plf. on behalf of B.

36. 2- Apparent/ostensible authority Appear to others to be authorised. In reality he does not have any authority Company cannot deny the authority when: i- The company represented to others that the alleged agent has authority; ii- the representation made by authorised individual; iii- the others must have relied on that representation when decided to contract with the company

37. Representation how it happened? a)Apparent authority derived from actual authority. When the actual authority has been reduced or terminated. e.g. company secretary was not to book any hotel room for GM until received approval of the BOD. He booked rooms despite the limitation on his authority. Q- can the hotel enforce the contract? Did the secretary’s act bind the company? Answer – apparent authority as a company secretary to organise meeting of the company.

38. Since the third party, hotel did not have notice of the limitation of the actual authority – company is bound by the act of the secretary. b) When the company informed others about the agent’s authority. The agent himself did not know about his authority. What is a valid representation? a) The representation must be made by authorised person. e.g BOD, resolution of the company,

39. Armagas Ltd v Mundogas SA Representation by the agent cannot prevent the company from denying the agent’s authority British Bank of the Middle East v Sun Life Assurance Co of Canada BB wrote a letter to SL to confirmed the authority of an officer Dehnel to execute an undertaking to repay SL’s customer’s debt. It was addressed to GM but answered by Branch Manager, Clarke.

40. Q-Did the representation made Dehnel an agent with apparent authority? Held- since Clarke himself did not possess authority to make the representation, his action did not give Dehnel apparent authority. SL did not liable for his action. b) The third part must have relied on the representation Know / ought to have known about the agent’s lack of authority cannot rely on the representation/ was put on enquiry, cannot rely on apparent authority

41. Constructive notice doctrine & agency rules an outsider dealing with a company is deemed to have notice of all the company's public documents. Meaning -to have known about their presence and their contents; and to have read and understood

42. KL Engineering Sdn Bhd & anor v Arab Malaysian Finance Bhd The documents include MOA, AOA, Form 49, AND other public notice ***This is a harsh rule which effect is mitigated by the Turquand rule.

43. Turquand rule/ indoor management rule Find the article online: Notis Konstruktif & Kaedah Dalam Royal British Bank V Turquand... Company’s public document – useful to check the authority of the company’s agent. The law allows outsiders to assume that acts w/in the company’s MOA and powers have been properly and duly performed. Hence, outsiders are not bound to inquire whether acts of internal management have been complied with.

44. How to determine whether the organ/ the agent was authorised to act? In most instances when the agent’s authority is lacking – outsiders would not have knowledge because the matters are within the company’s internal management procedures and processes.

45. Royal British Bank v Turquand Company incorporated to operate mine and railway. AOA provides that the directors may borrow on bonds sum or sums of money if authorised in the GM. Two directors singed a document wh issued a bond acknowledging the company’s indebtedness to the bank for the sum of £2,000. The bond was issued under the seal of the company with the approval of the GM. H/ever, the resolution did not state the authorised amount.

46. Q- did the contract bind the company? Held- Yes. the outsiders were bound to read the company’s constitution. But they were not bound to enquire into the internal proceedings of the company. Outsiders have right to assume that all acts of internal management had been fully carried out unless they knew or ought to have known of the failure to adhere to the procedures.

47. Conditions to be fulfilled to rely on this rule: 1- third party must have acted in good faith. If he knew about the irregularity he cannot rely on this rule. The k/ledge must be present at the time of entering into the contract Howard v Patent Ivory manufacturing Co. AOA of the company provides that directors may borrow money on behalf of the company not exceeding £1000 at any one time.

48. They lent money to the company secured by debentures for the amount exceeding the limit. They wanted to enforce the debentures. Q- can they rely on turquand rule to enforce the contract upon the company? Held- the debentures were valid to the extent of not exceeding £1000. They cannot rely on Turquand rule because they knew about the lack of authority to borrow more than £1000

49. Turquand rule cannot be relied on by the outsider against the company if: i- outsider has actual knowledge of the irregularity; ii- ought to have known of the limitation; iii- outsiders who deal with company is put on inquiry but fails to inquire; - the facts known may be such as would make it obvious to a reasonable person that something was definitely wrong; or

50. - the facts known may raise only a question in the mind of a reasonable person as to whether something is wrong iv- irregularity concerning forged document Hence, if the company’s seal or signature was forged – company is not bound.