ZCZB 6013(SET 1)

BUSINESS LAW AND ETHICS

SARMILA HUSAIN

ZP 00750

COMPANY LAW -1965

Q2: What is its effect in Malaysia?

Q1: What is the Ultra Vires Doctrine in company law?

• Name & Address Company• Object clause (purpose of the business)• Limitation of liability clause• Share capital clause

• Division of powers• Shares• Directors• Dividends• Obligation of members• Table A: 4th Schedule is

the Model Articles

COMPANY NOT ACTS accordance with MA & AS, the DOCTRINE of ULTRA VIRES will apply.

Latin Phase ‘Ultra’ – beyond & ‘Vires’ – powers

MEANS - an act beyond powers/ capacity

Ultra Vires Transaction – Contract beyond object clause

Ultra Vires Borrowings – Borrowing beyond the power of company

Case: Attorney General Vs Mersey Railway Co(1907) 1 Ch. 81

• Common Law The company cannot make it valid, even if every member of the company assents to it.

ASHBURY RAILWAY CARRIAGE AND IRON CO. LTD V RICHE (1875]

Completed Transactions

Sec. 20(2) – ExceptionsUnder the law, any such lack of power may be relied upon only 3 circumstances :-Sec. 20(2) (a): in proceeding against the company by member of the company or debenture holder to restrain the company from doing any ultra vires act, or conveyance or transfer of any property to or by the company.(b):in proceedings by the company or any member against the present or former officers of the company, and (c):in any petition by the minister to wind up the company.

Sec. 20(2) – ExceptionsUnder the law, any such lack of power may be relied upon only 3 circumstances :-Sec. 20(2) (a): in proceeding against the company by member of the company or debenture holder to restrain the company from doing any ultra vires act, or conveyance or transfer of any property to or by the company.(b):in proceedings by the company or any member against the present or former officers of the company, and (c):in any petition by the minister to wind up the company.

Uncompleted transaction

Uncompleted transaction

• The company obtain an injunction to stop the ultra vires transaction.

• may allow compensation to the company or other party for loss suffered as a result of granting the injunction

The rule of Ultra Vires is to protect the shareholders & creditors of the company.

Third parties/ creditors protected under Sec. 20(1), which completed transactions the defense of ultra vires does not reply.

Uncompleted transactions may be stopped thru an injunction by members.

The present and former officers of the company may be made liable to the company for the ultra vires transactions.

Ultra Vires borrowings does not create the relationship of creditor and debtor.

The company may also be wound up by the minister.

An Act not consider as Ultra Vires IF:

Case: Attorney general vs mersey railway co (1907)

Fact: There was company & it was incorporated for carrying on hotel business. It entered into a contract with some 3rd parties for purchasing furniture, hire servants and for maintaining omnibus. Object clause not mention to purchase furniture or hire servants. So Whether the transaction was ultra vires?

Held: A company incorporated for carrying on hotel business can purchase furniture, hire servants and maintain omnibus to attend at the railway station to receive the attending guest because these are reasonable necessary to effectuate the purpose for which the company has been incorporated.

Section 20(3):

Case: Hawkesbury Dev. Co Ltd vs Landmar5k Finance Ltd(1969) Australia

Fact: Hawkesbury the sole share holder in Landmark Finance, sought a declaration that certain debentures granted by Landmark Finance to UDC were void on the ground of Ultra vires and that UDC should not restrained from enforcing them.

Held: In order for Hawkesbury to succeed, it had to demonstrate that some relief was being sought against the company. As it was in effect, seeking relief against UDC & not Landmark Finance, so the application must fail.

Section 20(3):

Case: Pamaron Holding Sdn Bhd Vs Ganda Holding Berhad (1988)

Fact: A puchaser of shares attempted to rely on Sec 20(3) to argue that the transaction being ultra vires, the seller should not granted summary judgments for the purchase price.

Held: The court rejected the argument on the ground that was not a person contempletedIn order for Hawkesbury to succeed, it had to demonstrate that some relief was being sought against the under the subsection.