PAST YEAR PRESENTATION

Prepared by:NUR AMALINA ABD RASHID

NUR UMI HANI MANSORASIAH KAMILAH BINTI NOH

Question 6, March 2005 (a) Arsene, Alex and Rafael are the directors of PQR Sdn Bhd, a company

specialising in the making of football equipment. Last year Arsene was requested by Alex and Rafael to negotiate a contract on behalf of PQR Sdn Bhd with a company in Bangkok for the setting up of a manufacturing plant there. The Bangkok company, however, was not prepared to grant such a contract to PQR Sdn Bhd and Arsene promptly reported this to the board of PQR upon his return. Two months later he left the company. Alex and Rafael have now discovered that since leaving the company he managed to secure the contract with the Bangkok company and has made very high profits. They seek your advice on whether PQR Sdn Bhd can successfully sue Arsene for the profit that he has made from the contract with the Bangkok Company. Advise Alex and Rafael.

(70 marks)

ISSUE

• Whether the director which is Arsene breach his fiduciary duty to avoid conflict of interest.

• Whether the director Arsene breach his duty of disclosure.

• Whether the company can apply the remedies.

Director

• Section 4 CA 1965is a person occupying the position of director of corporation, by whatever named calledAlso include those whose directions or instructionsaccustomed to act

Duties of Director

Fiduciary duty (S 132) Statutory duty (S 131 & 135)Duties of skills, care and diligence (S132 1A)

Fiduciary Duty

acting in good faith and in the interest of the company.- good faith = honesty

Re W and M Roith Ltdwhereby the director had entered into agreementwith the company that benefit him alone. Courtheld that the agreement is void since the directorhad breach his duty to act honestly and for the bestinterest of the company.

Acting within the power given and use the assets for the purpose of the company.- ensure that all company’s asset & power

are use within it’s capacity and for the purpose co. is formed

Mills vs Mills- Court held that director are fiduciary agent- power conferred upon them cannot be exercised in order to obtain private advantage or purpose foreign to the power.

Avoidance of conflict of interest- not put himself in a position where his

interest and duty are likely to conflict.Aberdeen Railway Co v Blaikie Bros -- contract was entered with one of the partners was a director of the company- court held that the company could avoid the contract even though the terms is fair.

it means that the director cannot enter into the contract that creates conflict of interest to him.

Case: Canadian Aero Service Ltd v O’MallyThe director who has resigned with the

intention to obtain opportunity for himself maynot be able to do so as he still owes duty.

Court held that the resignation was irrelevant as thepurpose of the resignation was to take opportunity for himself.

Case:Peso Silver Mines Ltd v CropperCourt allowed the director to take the opportunity as

the company had bona fide rejected it

Case: Queensland Mines Ltd v HudsonThe director had fully informed the companyabout his interest in the contract. Court held that the director is not liable to the company for his profit.

Circumstances whereby conflict of interestmight occur(S. 132 (2))a) Use property to gain profitb) Use any information acquired by virtue to his

position as officer or director c) Use his position as such director or officer d) Use any corporate opportunities e) Engage in the business which is competing

with the company

S 132(2)(d) Use of corporate opportunityCase: Industrial Development Consultants v Cooley

the managing director of IDC attempted to secure a contract with EBG on behalf of the company.EBG indicated to the managing director that they were not prepared to deal with IDC but the director personally.Later on, he quit and obtained the consultancy for himself.Court held: director breach his duty to the company.

Using information acquired by virtue of hisposition (S 132 (2)(b)

Directors are not allowed to use any information and property entrusted to him for the purpose of obtaining advantage for themselves and cause detriment to the company.They are liable to the co. for any damage suffered by the co as the result of the breach. S 132 (3)

Statutory duty• S 131A (1)

- required director to disclose any potential conflicts of interest- shall not participate in any discussion while the contract that the company want to enter is being considered by the company- shall not vote for the contract or proposed contract

• S 131A (3)- where the contract or proposed contract is entered

into in contravention of subsection (1), the contract or proposed contract shall be voidable at the instance of the company

• S 135General duty to make disclosure

a) Particulars related to share, debentures, participatory, interests, rights, options and contract

b) Particulars of any change in respect of particular in section (a)

c) Events and matters affecting and relating to himself compliance by the company with the requirement of the act

d) Date on which he attains or will attain the age seventy (public co. and subsidiaries of public co)

Duties of care, skill and diligence

• S 132 (1A)- a director shall exercise reasonable care,

skill and diligencea. The knowledge, skill and experience may be

reasonably be expected of a director having the same responsibilities

b. Any additional information which the director in fact has.

Remedies

Injunction - ultra vires case - Section 20

Declaration of power as Invalid/Rescission of ContractsRecovery of profits/Suing for damagesCase: Mahesan v Malaysian Government OfficerReturn of specific property- where the property is acquired in breach of duty, must return it to the company

APPLICATION

1ST ISSUE

Whether the director which is Arsene breach hisfiduciary duty to avoid conflict of interest.

Circumstances whereby conflict of interestmight occur(S. 132 (2))a) Use property to gain profitb) Use any information acquired by virtue to his

position as officer or director c) Use his position as such director or officer d) Use any corporate opportunities e) Engage in the business which is competing

with the company

• Taking up corporate opportunity

Case: Industrial Development Consultants v Cooleythe managing director of IDC attempted to secure a contract with EBG on behalf of the company.EBG indicated to the managing director that they were not prepared to deal with IDC but the director personally.Later on, he quit and obtained the consultancy for himself.Court held: director breach his duty to the company.

IDC = PQR BhdEBG = Bangkok CoDirector= Arsene

Case:Peso Silver Mines Ltd v CropperArsene can only take the opportunity offered by Bangkok Bhd if the company had bona fide rejected it.

Case: Queensland Mines Ltd v HudsonArsene will not be liable to the company if he had fully disclose his interest on the contract to the company.

• Using information acquired by virtue of his position (S 132 (2)(b)

Directors are not allowed to use any information and property entrusted to him for the purpose of obtaining advantage for themselves and cause detriment to the company.In this case, Arsene maybe use the information that he gain when he met Bangkok Co on behalf of the company. He then quit from PQR and enter into a secured contract with Bangkok Co. Thus, he is consider to breach his duty.

2nd issue

Whether the director Arsene breach his duty of disclosure.

Duty to avoid conflict of interest is directlyrelated to duty of disclosure. Thus, if a director was in conflict of interest he has a duty to disclose it.Section 131 A stated that Arsene has a duty to disclose his interest to PQR if he want to take the opportunity that he get during his meeting with Bangkok Co. upon his disclosure, Arsene shall not participate or vote for the contract while the contract is in consideration. However, Arsene had failed to disclose his interest to PQR Bhd. Thus, Arsene had breach the duty of disclosure.

3rd issue

Whether the company can apply the remedies.

• The remedies that PQR Bhd can apply is recovery of profits or suing for damages

• According to Section 132 (3), the director shall be liable to the company for any profit made by him as a result of the breach.

• It means that PQR Bhd can ask for recovery of profits that Arsene make from his contract with Bangkok Bhd.

ConclusionPQR Bhd shall take action on Arsene since he does breach his duty to avoid conflict of interest since he took corporate opportunity without disclosing it to the company and use the information that he get by virtue of his position as director to enter into a secured contract with Bangkok Co. PQR Bhd is able to apply the remedies of recovery of profits or suing for damages. Arsene is liable to the company for profit made according to Section 132 (3).

MAC 2005 QUESTION 6 (B)

MALAYSIAN CORPORATE LAW

LAW485

QUESTION 7 (b) Alex and Rafael also wish to appoint a person to replace Arsene as a director of the company. They are contemplating appointing Jose, a Portuguese , aged 75. They wish to know whether, and if so, how, such an appointment may be effected.(30 marks)

ISSUE

1. Whether Jose can be appointed as a director.

Portuguese Aged 75

LAW• SECTION 122 (1)

Every company shall have at least two directors, who each has his principal or only place of residence within Malaysia.

CASES

• Foh Poh Yoke & Ors v The Central Construction Company (Malaysia) Sdn Bhd– Illustrated the requirement of being a

resident in Malaysia for the office of director .– Court said that the term residence connotes

residence in one place with some degree of continuity.

– Person who resides in other place besides Malaysia would not entitle him/her to claim residency in Malaysia.

• Abdul Hamid J in MY v Comptroller-General of Inland Revenue [1972] Held that to be a residence in a

place, an individual must first of all reside in that place.

He may be absent from the place provided

( temporary & reasonable).

• SECTION 129 - Age limit for directors

(1) ….no person of or over the age of seventy years shall be appointed or act as a director of a public company or of a subsidiary of a public company.

(6) ….a person of or over the age of seventy years may by a resolution of which no shorter notice than that required to be given to the members of the company of an AGM has been duly given, passed by a majority of not less than three-fourths of such members of the company as being entitled so to do vote in person or, where proxies are allowed, by proxy, at a GM of that company, be appointed or reappointed as a director of that company to hold office until the next AGM…

• Section 135 – General duty to make disclosure

(1) (d) A director of a company shall give notice in writing to the company - if he is a director of a public company or of a subsidiary of a public company of the date on which he attains or will attain the age of seventy.

APPLICATION

• In this situation, Jose are considered as non-resident according to section 122 (1).

• Case : Abdul Hamid J in MY v Comptroller-General of Inland Revenue [1972] 1 MLJ 84

• Based on Section 129, Jose who is over the age of seventy years still can be appointed or act as a director as PQR Sdn Bhd is a private company.

• No age limitation is provided for private company.

CONCLUSION

• Jose cannot be appointed as a first two director as he is a non resident.

• But, he can be another director if Alex and Rafael are resident.

• Based on his age, Jose still can be a director of the company since PQR Sdn Bhd is a private company.