Commercial Applications of Company Law in Malaysia
Question 1
The advantages and disadvantages for Mal and Lisa on their plan the conduct the Smallco Graphics through a company will be dependent on the Malaysian Companies Act 1965, the law regarding the incorporation of a company in Malaysia (Incorporation of Company in Malaysia 2005). Thus, it is important to take note that the Company law in Malaysia is based on the English company law, and also influenced by the Companies’ law of Australia (Furtado and Kazi n.d.).
The primary advantage for Mal and Lisa is that they will be able to acquire funds in easy manner by exchange of share ownership or loan from a financial institution. This is important because, one of their primary problems is the financial aspect (Radient 2008). Aside from that, it will also offer limited liability for the shareholders (Stokes and Wilson 2006) because they are protected by law, thus the liabilities o the members of the company will only be limited to the capital which they contributed to the company, therefore their personal assets will not be affected (Radient 2008). Therefore, the personal assets of Mal and Lisa will be protected. Aside from that, the existence of the company will not be threatened by death or even personal bankruptcy of one owner (Stokes and Wilson 2006); therefore, the Smallco Graphics can continue its operation in the future (Bendrey, et al. 1996).
On the other hand, the advantages is the fact that it will be more time-consuming and expensive to set up (Stokes and Wilson 2006) because a Private Limited Company is subject to more rules and regulations and must always abide by the rules and fulfill the different terms set by the Companies Commission of Malaysia. Aside from that the company must also pay corporate tax, and hire qualified Auditors to audit, complete and maintain financial statement, thus the financial condition of the company must be transparent to the general public. Above all, there are different costs to be considered such as authorized capital, professional fees, filing charges, the printing of the company’s Memorandum of Associate and Articles of Association, shares certificates and company’s seal (Radient 2008).
Question 2
Limited liability is a condition under which a partner or shareholder of a business secures himself from bearing a loss that is greater than the amount he has invested in a company or partnership with the limited liability. Thus, if the business experience loss, the maximum a shareholder can suffer, is that he or she may lose his entire original investment, and the loss cannot be extended to his or her personal assets. Furthermore, if the assets of the company are not sufficient to discharge all of its liabilities, the creditors cannot claim the remaining part of their receivables from the personal assets of the shareholder (Taqī Us̲mānī 2002, 103). It was mentioned that the liabilities of the members in a company are only limited to the local shares that s contributed to the capital of the company. Thus, personal assets are not affected in spite of what happens to the company (Radient 2008).
In the case of Smallco, regarding their transaction with the ComCo, Lisa and Mal will not be personally liable, because the limited liability create a valuable right to default on obligations to the creditors (Fabozzi and Peterson 2003, 606). The said situation will not be the same under partnership because general partnerships do not offer liability protection. As a result, Lisa and Mal will be personally liable and responsible for all the business debts and the creditor can collect a partnership debt from any partner, regardless of which partner incurred. On the other hand, a written partnership agreement can apportion liability among partners, how it won’t absolve individual of personal liability (Mancuso 2008, 48).
On the other hand, regarding the responsibility of the company towards the landlord and the bank, it is important to consider the fact that there is always an exception to the rule. There are some cases where in directors and shareholders are being required to pay money owned by their company. Like in the situation of the Smallco, when a bank or other lender lends money to a small company, especially those newly formed one, it often require principal shareholders to agree to repay the loan from their personal assets, if the company fail to do so. Therefore, Lisa and Mal are personally responsible and liable to the landlord and the Bank (Mancuso 2008, 49).
Question 3
Based on the different factors which are associated to the lost of Subco, it can be said that all of these are connected to breach of duty of care, skill and diligence by the directors of the company. First is that the executive appointed by the board to manage the project were not familiar and does not have experience in the said project. As a general rule, a director must have at least, rudimentary understanding regarding the business, thus, must be familiar with the fundamentals of the business, where in the business is engaged (Tomasic, Bottomley and McQueen 2002, 371). Therefore the issue about the food contamination scares which affected Big Bakers and loss due to failure to ensure, which is considered as a common business practice, can be considered as unreliability of the Director.
In connection to the performance of the appointed executive, it is important to consider that it is the responsibility of the directorial management to monitor the performance of other executive. It does not require a detailed inspection of day-to-day activities, but a general monitoring of corporate affairs and policies. It is important to take note that director is not an ornament, but a vital component of corporate governance (Tomasic, Bottomley and McQueen 2002, 371). In addition, the executive exaggerated the sales figures in his monthly report in order to cover his fault. It is important to consider that director must act honestly and in good faith in the interests of the company (Salim 2009). Therefore, the director may not shut their eyes to a corporate misconduct and then claim that because they did not see the misconduct, they did not have a duty to look (Tomasic, Bottomley and McQueen 2002); therefore, the issue about monitoring is always an important factor. On the other hand, the decision of the Director and the boars regarding renegotiation of the leases on a number of key supermarket sites, the Director forgot the fact that her right and duty of deciding where the company’s interests lie and how they are to be served may be concerned with different important and vital practical consideration and judgment (Tomasic, Bottomley and McQueen 2002).
Question 4
Tommy Tang as the Director of Subco forgot that corporate boards have two major fiduciary duties: duty of loyalty and duty of care. The duty of loyalty means that the directors should act in the interests of the company, and not in their own interests, while the duty of care requires the directors to try to make good decisions (ADBInstitute 2009). The law duty of care focuses on the things and factors which the Directors owe to the corporation and its stockholders by inclusion of a clear and unambiguous provision in the certificate of the incorporation, while the duty of loyalty focus on good faith (Mathias, et al. 2000). In case of failure in fiduciary duties in proper manner, the shareholders can resort to different actions including petitioning for the dismissal of directors and auditors or even the injunction of illegal acts of the Directors and filing derivative suits or class action suits for damage done to the company or even the shareholder (ADBInstitute 2009). This is connected to the duties, responsibilities, care, skill and diligence of the Directors, which primarily focus on the role of the Director in maintaining good governance inside the organization.
Tang enables to pursue his selfish acts by means of insider trading. According to Bursa Malaysia Securities Behad, insider trading is the purchase or sale of a company’s securities affected by or on behalf of a person with knowledge of relevant but non-public material information regarding company. The insider is in a position to make massive gains by the process of selling or buying securities before information that might affect price of the security of the company (Mohammad Hussin, Mohd Herwan Sukri; 2008). This has been done by him by buying the share of the family members at 85% and then selling it to the Listco at a price that is higher than what he gave to the family. As a result, he will earn something out of the information which he accidentally heard from Mr. Fearless and Mr. Goff. The main problem here is that the said information was considered as confidential, and he failed to inform the family member regarding the said information, therefore, making them believes that he’s doing what’s good for them.
Question 5
Duty of loyalty or the duty to act in good faith in the interest of the company is considered as an important factor that must be followed by directors in order to ensure their effectiveness and relativity. Based on the case of Subco towards its lending of RM20 million to its wholly owned subsidiary, Food Products Sdn Bhd., it can be said that there is breach of duty by the directory of the company. The duty of good faith pertains on the duty of the directors to focus on the different factors which can affect their performance, through the different decisions and plans that they are implementing.
In the case of Listco, it can be said that the director and the entire board exhibited breach of duty to act in good faith. Primarily, it is important to consider that in order for a director to act in good faith, it is important for them to decide with accordance to the benefit of all the shareholders who are involved. Directors are in a position of trust within a company, thus they are required to act in their best (Duties & Reponsibilities 2009). If we are going to look at the problem, it can be said that the director and the board are no practicing any plan which is against the duty of good faith, this is because all of them were consulted about the recommendation for Food Products. However, if we are going to look at the situation in-depth, we will see that the director and the boards are not being fair and equal with all the shareholders. This is because of the fact that the recommendation will help Food Products Sdn. Bhd. to develop new products which will enable them to gain more profit for Listco, which is somewhat reasonable because Listco holds 73% of majority of the entire ordinary shares in Subco. The question lies on the part Tang Family, who holds the remaining ordinary share. The company will use part of its budget or finance in order to be used by Food Products, without any interests and benefits. It will be unfair for the Tang Family. It is important to consider that the position of the director on the company property which includes money, assets and other important information is equivalent to that of trustees. Therefore, the directors should not allow their personal interests and their duty to the company to conflict (Duties & Reponsibilities 2009). The said situation will be different if Listco will be able to release funds, with no interests for Food Products, because they will gain the greater benefits.
Question 6
Regarding the issue of improper use of information, it can be said that there are different issues that must be considered. First, it is important to consider the decision of Frank Fearless regarding the recommendation of Gary Goff, regarding the proposal of online grocery. The problem lies on the fact that, for some reason Frank Fearless has been waiting for the right time to fire Gary Goff, as a result, he didn’t care to listen to the recommendation of Gary Goff, which in the end, and he proved that he was right regarding his proposed online grocery. However, Garry Goff is still guilty of the law rule taking corporate property information and opportunities. The Companies Act requires directors to act honestly and use reasonable diligence in the discharge of their duties all times. Furthermore, it also prohibits the improper use of information that is obtained by virtue of their position as a director to obtain, directly or indirectly, an advantage for themselves or for others, or to cause harm to the company (David n.d.). This is also connected to the misappropriation rule that is build on the underlying law conflict rule and provides that the directors must not take corporate, property, information or opportunities without the permission of the company (Mugambwa, Amankwah and Haynes 2007). Therefore, because of the fact that Gary used the information and knowledge which he have acquired during his experience in the online grocery project of the company, as well as his usage of contact list and apply it to Interco Berhad and it had affected the company in a way, it can be said that the company improperly used information that belong to the company. The least thing that the company and the Companies Act can be done for Gary Goff is for him not to be involved in the management of a company for a period of 5 years of each other may also be disqualified for a similar period by order of the court (David n.d.).
Question 7
As a director, Phil Peters play two important roles: agent and a trustee who controls the assets of the company (Directors' Duties, Responsibilities and Rights 2009). Therefore it is important for him to exercise judgment in decision-making. Unfortunately, he failed to do so, which resulted to the loss of Tang Supermarket. There are different options which can be done by the company towards Phil Peters, first, is that they can force him to pay for whole or part of the money, which he lent to the company. This will enable the company to regain the money. The decision whether to fire him will be decide later. On the other hand, the company can fire him after hearing his side, and after knowing that he had breached his duty of care. This will result to two lost. First are the loss of the money which he had lent to the company and the loss of an employee, skills, talents and abilities.
On the other hand, the Registrars of Companies or ROC will focus on the Companies where in persons who have been convicted of the said offences which include failure to discharge duties as a directors under the said act may not be involved in the management of a company for a period of five years thereafter, without leave from the court (David n.d.). In that case, Phil Peters will be unemployed for 5 years due to his negligence because, the said aspect will affect this reputation, and it will be hard to gain directorial position in the future.
Question 8
I do not agree that section 181 of the Companies Act 1985 is just a remedy for small and privately owned companies. This is because it provides for a statutory remedy against oppression. It focus on the personal rights of the member fairly and enables a member to make an application to court for appropriate orders where the member is oppressed, prejudice or unfairly discriminated against or his interest disregarded which focus on unfairness to the concern of the shareholder. The reason why it is applicable for Rufus Tang is because section 181 is favored by more people because it gives more varieties of remedies (Leong Ho 2005, 126).
In the case of Subco, together with Rufus Tang and the rest of the Tang Family, it can be said that there is an ongoing oppression because the directors of the company is focusing only on the interests and concerns of Listco. Thus, section 180 encompasses autocratic conduct by the board, the appropriation of business, property or corporate opportunity at the expense of the company or its minority shareholders, unjustifiable failure to pay dividends and even the neglect of duty of care skill and diligence of the director (Leong Ho 2005, 126).
There are also different remedies at common law that are capable of being brought by a shareholder: personal action, representative action and derivative action. In the situation of Rufus Tang, he can take the representative action, because his family is involved. He will take action on behalf of the Tang family in order to seek remedy against infringement of their collective personal rights (Leong Ho 2005).
Question 9
As the Managing Director, Jenny Johnson is the Chairman of the Executive Board and chief and considered as the principal representative of the fund (Horsefield, De Vries and Gold 1981). Thus, it can be said that she has the final says with accordance to the licensing agreement with the Sales Concept Sdn Bhd. However, it is important to consider that when Barry Boon meets Wanda West, he was considered as apparent authority, a principal can be bound by unauthorized acts of an agent who appears to have authority to act (Meiners, Ringleb and Edwards 2006). Thus, it can be said that the possible positive impact of direct marketing system for the company, is the primary thing which motivate him to transact with the Sales Concept Sdn Bhd. without asking the Managing Director. The question lies on the validity of the said transaction. Thus, the indoor management rule can be applied or the rule which seek to protect the company against outsiders which is considered as opposite with the Constructive Notice, which protect outsiders against the company (Singh 2008, 230). According to the said rule, the transactions happened between Subco and Salec Concept Sdn Bhd. was invalid because indoor management rule applied when the board of a company had exceeded the limits on its own authority to exercise the powers of the company under the constitution, regardless if the limits were substantive or procedural (Grifiths 2005). Therefore, it can be said that the situation will be different if the one who transact with Wanda West was the head of the marketing department, because he or she has the background regarding the said department, and he or he has the authority.
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