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Fundamentals Level – Skills Module, Paper F4 (MYS)
Corporate and Business Law (Malaysia)
1
June 2010 Answers
This question tests the candidates’ knowledge on three specific rules of statutory interpretation, viz, the literal rule, the ejusdem
generis rule and the mischief rule.
(a)
The literal rule
This is a rule by which a word or phrase is given its literal or ordinary grammatical meaning. According to this rule, if the words
of the statute are in themselves precise and unambiguous they must be expounded in their natural and ordinary sense. This
rule is very commonly used and sometimes appears to give a result contrary to the intention of Parliament. The case Fisher v
Bell (1961) is a good illustration of the application of this rule. In this case a shopkeeper was charged under the Restriction
of Offensive Weapons Act 1959 for offering for sale certain weapons, including ‘flick knives’, by displaying these knives in a
shop window. The court held, applying the literal rule, that the display was not an offer for sale but merely an invitation to
treat. Thus, the shopkeeper was held not guilty. The courts in Malaysia have also adopted this rule. This may be illustrated
by the case of Kon Fatt Kiew v PP (1935), where the court held, applying the literal rule, that ‘rubber’ includes ‘scrap rubber’.
Another relevant case is Foo Yoke Ling & Anor v Television & Ors (1985), where the provisions of the Copyright Act 1969 were
interpreted by applying the literal rule.
(b)
The ejusdem generis rule
This is the rule by which, where a general word follows a class of specific words, the general word is interpreted to refer to
words of that class only. This rule was adopted by the High Court in the case of Public Prosecutor v Pengurus Hong Trading
& Co (1985), where the relevant part of the statute referred to a prohibition on tea containing any ‘Prussian blue, or lead or
any compounds of lead or other matter …’. The question was as to the interpretation of ‘other matter’. The court applied the
ejusdem generis rule and held that ‘other matter’ referred to things of the same category as ‘Prussian blue, lead or compounds
of lead’.
(c)
The mischief rule
This rule facilitates the court to interpret words or phrases which are unclear and ambiguous in the light of the statute as
a whole. In such cases the courts will enquire into the ‘mischief’ behind the statute. i.e. the court will look into the overall
intention of the legislature as discovered from a reading of the statute as a whole. The matters that the court must consider
were laid down in Heydon’s Case (1584) as follows:
(i)
(ii)
(iii)
(iv)
What was the common law prior to the Act?
What was the mischief and deficiency for which the common law did not provide?
What was the remedy that Parliament had provided for?
What was the true reason for the remedy?
This rule has been applied by the Malaysian courts in Lim Moh Joo v PP (1970).
In this case the Criminal Procedure Code required the Public Prosecutor to deliver a copy of a report to the accused not less than
ten clear days before the commencement of the trial. The issue was whether the same procedure applied when the prosecution
was by a private person. The court held that it did, saying that this was a case where the court must modify the language of
the law to meet what must have been the intention of the legislature.
2
This question tests the candidates’ knowledge on ‘redundancy’ in the context of employment law as well as the periods of notice
required for the termination of a contract of service.
(a)
(i)
Redundancy, in the context of employment law, refers to a situation where an employer has surplus of labour and has to
downsize his labour force.
(ii)
A redundancy may be said to occur in the circumstances mentioned in s.12 (3) (a) – (d) of the Employment Act 1955
i.e. where:
(1) The employer has ceased, or intends to cease to carry on the business for the purposes of which the employee was
employed;
(2) The employer has ceased or intends to cease to carry on the business in the place at which the employee was
contracted to work;
(3) The requirements of that business for the employee to carry out work of a particular kind have ceased or diminished,
or are expected to cease or diminish; or
(4) The requirements of that business for the employee to carry out work of a particular kind in the place at which he
was contracted to work have ceased or diminished or are expected to cease or diminish.
Relevant cases are: Food Specialities Sdn Bhd v Esa bin Mohamad (Award 74 of 1989); Gold Coins Feedmills Sdn
Bhd v Ibrahim Shah (Award 657 of 2001) and PBR Automotive Sdn Bhd v Subramaniam Andi & Others (Award 237
of 2002).
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(b)
Section 12(1) of the Employment Act 1955 states that either party to a contract of service may terminate it by giving to the
other notice of his intention to do so. By s.12(2) the length of notice, which must be the same for the employer and the
employee, shall be determined by any provision in writing for such notice in the terms of the contract of service. In the absence
of such provision in writing, the notice shall not be less than the statutory minimum which is:
(i) four weeks’ notice if the employee has been employed for less than two years;
(ii) six weeks’ notice if the employee has been employed for two years or more but less than five years;
(iii) eight weeks’ notice if he has been employed for five years or more.
However, it must be noted that s.12(2) does not prevent either party from waiving his right to a notice under the sub-section.
3
This question tests the candidates’ knowledge on the law of agency in relation to an agent’s scope of authority, both actual as well
as ostensible authority.
(a)
Actual authority
Actual authority refers to the authority that is given to an agent by agreement. Actual authority comprises both express authority
as well as implied authority. Express authority may be given either orally or in writing (see ss.140 and 141 of the Contracts Act
1950). For example, if the principal appoints an agent with express instructions to buy for him a piece of land at a price not
exceeding RM100,000, then the agent’s actual authority is to purchase such land for any price not exceeding RM100,000.
The principal will be bound so long as the agent has acted within this express authority.
Actual authority also includes those matters that may be properly implied in the circumstances. For example, the implied
authority will include all such powers as are proper or necessary to carry out the express instructions of the principal. Thus, in
the example given earlier, if the agent has to obtain the services of a valuer in order to assess the true value of the property, the
principal will be bound to pay for the services of the valuer so incurred.
Implied authority may also arise from:
(i) the circumstances of the case,
(ii) the custom or usage of trade, or,
(iii) the situation or conduct of the parties.
The case of Watteau v Fenwick (1893), serves as an example. In this case, the defendant appointed a manager to run a public
house and the licence, which appeared over the door, was taken out in the manager’s name. The manager was forbidden by
the defendant to buy cigars on credit. In disregard of this the manager bought cigars from the plaintiff, who now sued for the
price. It was held that the defendant as principal was liable because a manager of a public house would usually have authority
to make purchases of that kind, and the plaintiff could rely on such usual authority in the absence of express knowledge of the
restrictions imposed by the principal.
See also: Tunku Ismail bin Md Jewa & Anor v Tetuan Hisham, Sobri and Kadir (1989).
(b)
Ostensible authority
Ostensible authority (which is sometimes also referred to as apparent authority), refers to the authority which the agent is said
to have as a result of the principal’s words or conduct which leads a third party to believe that the agent has the authority to
act on behalf of the principal. This is clearly illustrated in s.190 of the Contracts Act 1950.
Ostensible authority may also arise where the agent has previously acted on behalf of the principal, but such authority had been
terminated by the principal, without notice to the third party.
Where ostensible authority arises, the agent is presumed to have the authority that the principal causes him to appear to
have. The element of estoppel applies as the principal is precluded from denying that the agent had such authority. The case
of Graphic Lines Pte Ltd v Chai Chee Mein and Ors (1987) serves as an example. In this case, the assistant manager of a
nightclub had placed advertisements for the nightclub with the plaintiffs. He did not have the actual authority to do so but the
general manager, who was one of the partners of the nightclub had represented to the plaintiffs that advertisements should be
authorised through the assistant manager. Since the general manager had actual authority to authorise the assistant manager
to place advertisements on behalf of the club, the defendants were bound by his act. It was clear that the assistant manager
had apparent authority to place such advertisements.
It must be noted that where the third party knew, or ought to have known, that the agent did not have the authority in question,
he cannot rely on apparent authority of the agent to enforce the transaction. See: Overbrook Estates v Glencombe Properties
Ltd (1974).
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4
This question tests the candidates’ on the advantages of incorporating a company as opposed to other forms of business
organisation.
There are many advantages of incorporating a company under the Companies Act 1965 as opposed to carrying on unincorporated
businesses such as a partnership or a sole proprietorship.
The most significant advantage of incorporating a company is that upon incorporation the company becomes in law a separate
legal entity distinct from its members and other stakeholders. This has been firmly established in the well-known case of Salomon
v Salomon & Co Ltd (1897), where the House of Lords held that even though Salomon was in reality in absolute control of the
company, upon incorporation the company was clothed with a legal personality distinct and separate from Salomon and the other
shareholders. Thus Salomon could also be a secured creditor of the company and a secured debenture issued in his favour could
have priority over the unsecured creditors. This position is clearly recognised in Malaysia under s.16(5) of the Companies Act
1965.
Consequently upon the company being regarded as a separate legal entity, incorporation of a company brings with it several other
advantages over unincorporated businesses. These may be summarised as follows:
(i)
The company can sue and be sued in its own name. As the company is a legal person (though an artificial one) it has the right
to institute legal proceedings in its own name.
(ii)
Property of the company belongs to the company and not its members. As the company is a separate legal person, it has the
power to own property in its own name. This is quite unlike unincorporated business associations, where the property may
have to be registered in the names of some or all of its members.
See: Macaura v Northern Assurance Co Ltd (1925).
(iii) A company may be formed with limited liability. This means that the members of the company will not be liable for the debts
of the company beyond the amount of capital they had agreed to subscribe. This is quite unlike an unincorporated association
where the members will be liable to the full extent of its debts.
(iv) A registered company, if formed as a public company, may raise capital from the public, provided it satisfies the requirements of
the Companies Act 1965 and the other specific legislation. Unincorporated associations cannot raise funds from the public.
(v)
The company is said to enjoy perpetual succession. This means that the company will continue to exist despite the death of its
members. This is different from a partnership, where the death of a partner will result in a dissolution of the partnership unless
the partnership agreement shows a contrary intention.
(vi) The company enjoys a privilege in relation to borrowing. It is allowed to give security in the form of a floating charge, unlike
individuals and a partnership. Such a charge allows the company to continue using the assets in the ordinary course of its
business. This type of charge cannot be created by individuals and partnerships.
(Note: Candidates are only required to explain any FIVE advantages.)
5
This question on company law tests the candidates’ knowledge on certain basic aspects of the memorandum and articles of
association, as well as the restrictions on the alteration of the memorandum.
(a)
The memorandum and the articles of association of a company are often referred to as the constitution of the company. These
two documents may be distinguished in that the memorandum of association contains those matters which are more important
to third parties dealing with the company, such as the name of the company and its objects clause. On the other hand, the
articles of association contains those matters which relate to the internal management of the company, such as procedure at
meetings and rights of members to transfer their shares and which are more important to persons within the company, for
example, members and directors.
(b)
Section 18 of the Companies Act 1965 requires the memorandum of every company to contain the following:
(i) A name clause, stating the name of the company;
(ii) An objects clause, stating the objects of the company;
(iii) A capital clause, stating the amount of share capital with which the company proposes to be registered, unless it is an
unlimited company;
(iv) A liability clause, stating whether the liability of the members is limited or unlimited, and if limited, whether it is limited
by shares or by guarantee.
(v) A subscriber clause, stating the full names, addresses and occupations of the subscribers to the memorandum.
(vi) An association clause, stating that the subscribers are desirous of being formed into a company in pursuance of the
memorandum and (where the company is to have a share capital) and respectively agree to take the number of shares in
the capital of the company set out opposite their respective names.
(Note: Candidates are only required to state THREE of the above matters.)
(c)
The restrictions are as follows:
(i)
By s.21(1) of the Companies Act 1965, the memorandum of a company may only be altered to the extent and in the
manner provided by the Companies Act itself. Thus, for example, the objects clause in the memorandum of association
may be altered by special resolution as provided under s.28.
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(ii)
Further, by s.21(1A), a provision of the memorandum of a company which could lawfully have been in the articles of the
company, may be altered or deleted by special resolution. However, such an alteration is not possible if the memorandum
itself prohibits the alteration or deletion of that provision.
(iii) Further, under s.21(1A) stated above, the alteration or deletion of a provision of the memorandum that relates to rights to
which only members included in a particular class of members are entitled, is not permitted. Thus class rights inserted
into the memorandum of association cannot be altered. This is the effect of s.21(1B).
6
This question on contract law, tests the candidates’ knowledge on specific performance as a remedy for breach of contract as well
as the circumstances in which the court may, or may not, grant such a remedy.
(a)
Specific performance is an order of the court requiring the party who is in breach of the contract to perform his part of the
contract exactly as he had promised.
Specific performance is an equitable remedy as it was first recognised by the courts of equity. It is granted at the discretion of
the courts. In Malaysia the remedy of specific performance is provided for under the Specific Relief Act 1950.
(b)
By s.11 (1) Specific Relief Act 1950, specific performance of any contract may be granted at the discretion of the court in the
following circumstances:
(i)
When the act agreed to be done is in the performance wholly or in part of a trust. For example, A holds certain stock
in trust for B. A wrongfully disposes of the stock. B may sue for specific performance, compelling A to repurchase the
shares.
(ii)
Where there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to
be done.
For example, A agrees to buy and B agrees to sell, a picture by a dead painter and two rare China vases. A may
obtain specific performance as there is no standard for ascertaining the actual damage which would be caused by its
non-performance.
(iii) When the act agreed to be done is such that pecuniary compensation for its non-performance would not afford adequate
relief. For example, a contract of sale of land.
(Note: Candidates are only required to state TWO of the circumstances above.)
(c)
Section 20 Specific Relief Act 1950 stipulates that the following contracts cannot be specifically enforced:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
A contract for the non-performance of which compensation in money is an adequate relief;
A contract which runs into such minute or numerous details or which is so dependent on the personal qualifications,
or volition of the parties, or otherwise from its nature is such that the court cannot enforce specific performance of its
material terms;
A contract the terms of which the court cannot find with reasonable certainty;
A contract which is in its nature revocable;
A contract made by trustees either in excess of their powers or in breach of their trust;
A contract made by or on behalf of a corporation or public company created for special purposes or by the promoters of
the company, which is in excess of its powers;
A contract which involves the performance of a continuous duty extending over a longer period than three years from its
date; and
A contract of which a material part of the subject-matter supposed by both parties to exist, has, before it has been made,
ceased to exist.
(Note: Candidates are only required to state SIX of the circumstances above.)
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This question on corporate governance tests the candidates’ knowledge on the meaning of corporate governance as well as the
principal responsibilities of the board of directors in relation to Best Practices in Corporate Governance, as recommended in the Code
on Corporate Governance.
(a)
Corporate governance may be said to refer to the set of processes, customs, policies, laws and rules affecting the way a
corporation is directed, administered or controlled. It also includes the relationships among the many persons who have a stake
in the company (the stakeholders) and the goals for which the corporation is governed.
In Malaysia, the High Level Finance Committee Report on Corporate Governance defined corporate governance as, ‘the process
and structure used to direct and manage the business and affairs of the company towards enhancing business prosperity
and corporate accountability with the ultimate objective of realising long-term shareholder value, whilst taking into account
the interests of other stakeholders’. In essence, proper corporate governance is a set of principles and best practices, which
a company should follow to achieve the purposes indicated by the High Level Finance Committee Report on Corporate
Governance.
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(b)
The principal responsibilities of the board of directors in relation to Best Practices in Corporate Governance, as recommended
in the Code on Corporate Governance, are as follows:
(i)
(ii)
(iii)
(iv)
Reviewing and adopting a strategic plan for the company;
Overseeing the conduct of the company’s business to evaluate whether the business is being properly managed;
Identifying principal risks and ensuring the implementation of appropriate systems to manage these risks;
Succession planning, including appointing, training, fixing the compensation of and where appropriate, replacing senior
management;
(v) Developing and implementing an investor relations programme or shareholder communications policy for the company;
and
(vi) Reviewing the adequacy and the integrity of the company’s internal control systems and management information
systems, including systems for compliance with applicable laws, regulations, rules, directives and guidelines.
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This problem-based question on contract law contains two parts. Part (a) tests the candidates’ ability to identify the issue of
an invitation to treat as opposed to an offer and to apply the law to the given problem. Part (b) relates to the identification and
application of the issue of counter-offer as opposed to an acceptance.
(a)
In order for a valid agreement to arise there must be a proposal (offer) and an acceptance of that offer.
A proposal (offer) is said to be made when one person signifies to another his willingness to do, or abstain from doing anything,
with a view of obtaining the assent of that other to the act or abstinence: s.2(a) Contracts Act 1950.
An offer must be distinguished from an invitation to treat. While an offer may be accepted giving rise to an agreement, an
invitation to treat is only an offer to receive an offer, i.e. it is an invitation to another to make an offer. Examples of invitations
to treat are advertisements and displays in shop windows.
A case in point is Pharmaceutical Society of Great Britain v Boots Cash Chemist Ltd (1953). In this case the defendants were
charged with selling certain poisons in contravention of the Pharmacy and Poisons Act 1933. The question was whether a sale
had occurred when a customer in a self-service shop selected certain items which he desired to purchase and placed them in
a wire basket. The court held that the display in the shop only amounted to an invitation to treat. A proposal to purchase was
made when the customer selected the items he wanted to purchase. A sale would occur only when the cashier accepted the
customer’s money.
Another relevant case is Eckhardt Marine GMBH v Sheriff, High Court of Malaya, Seremban & Ors (2001). In this case, the
sheriff of the High Court of Malaya, Seremban, had arrested a motor vessel and later put it up for sale through an advertisement.
Among other things, the court held that the advertisement only amounted to an invitation to treat.
Applying the above law to the given facts, Aminah may be advised that there is no binding agreement for the purchase of the
vacuum cleaner at the price of RM100. The advertisement in the newspaper was only an invitation to treat. When Aminah
selected the vacuum cleaner and brought it to the payment counter to pay, she was in law only making a proposal to purchase
the vacuum cleaner, which the supermarket (through the salesperson at the payment counter) was free not to accept.
(b)
An agreement will arise where one party has made a proposal (offer) to another party and that other has unconditionally
accepted it. See: ss.2(a) and (b) Contracts Act 1950.
By s.7(a) the acceptance must be ‘absolute and unqualified’. In the event the person to whom the proposal is made varies the
terms of the proposal, he is deemed to be making a counter-proposal (counter-offer). A counter-offer has the effect of destroying
the original offer.
This is well illustrated in the case of Hyde v Wrench (1840). In this case the defendant offered to sell his estate to the plaintiff
for £1,000. The plaintiff replied by letter that he was willing to purchase at £950. When the defendant did not reply, the
plaintiff sent another letter to the defendant accepting the original offer price. The court held that there was no contract between
the parties. The counter-offer made by the plaintiff destroyed the original offer. Reference may also be made to the Malaysian
case of Malayan Flour Mills Bhd v Saw Eng Chee (Administrator of the estate of Saw Cheng Chor, deceased) & Anor (1997),
which applied the above principle.
In the given situation, Lim’s letter to Hanim stating that he was willing to buy the shares at RM2·00 per share clearly amounted
to a counter-offer.
Applying the law to the given problem, Lim may be advised that he will not be successful if he sues Hanim for breach of
contract.
9
This problem-based question on company law contains three parts. Part (a) tests the candidates’ ability to identify and apply the law
concerning the restriction on the power of directors to issue shares. Part (b) tests them on the issue of whether the acts of over-aged
directors can bind the company and part (c) tests them on the issue of removal of directors of public companies.
(a)
The validity of the issue by the directors of 500,000 shares to their friend Kam Cheng can be challenged on the ground that it
is in contravention of s.132D(1) of the Companies Act 1965. By this section, the directors of a company cannot, without the
approval of the company in a general meeting, exercise any power of the company to issue shares. This is subject to certain
exceptions which do not apply to the present problem.
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By s.132D(6), any issue of shares made by a company in contravention of s.132D(1) is void and the consideration given for
the shares is recoverable.
Ah Lee may be advised accordingly.
(b)
By s.129(1) of the Companies Act 1965, the general rule is that no person of, or over, the age of 70 years may be appointed
or act as a director of a public company, or a subsidiary of a public company.
As the name of the company is Susah Bhd, it is clear that it is a public company. Thus, Cindy, who is 71 years old, is
disqualified to act as a director unless she has in fact been appointed or re-appointed by the special procedure stated in
s.129(6).
However, whether or not she has been appointed or re-appointed by the special procedure is irrelevant to the issue of validity of
the acts done by such a disqualified director on behalf of the company. This is because by s.129(3), any act done by a person
as director shall be valid notwithstanding that it is afterwards discovered that there was a defect in his appointment.
Thus, Ah Lee may be advised that the contract for the purchase of office stationery cannot be invalidated on the ground that
Cindy was disqualified to act as a director of the company.
(c)
The procedure for removal of directors of a public company is as stated in s.128 of the Companies Act 1965. By s.128(1), a
director of a public company may be removed by an ordinary resolution in a general meeting notwithstanding anything in its
memorandum or articles, or any contract between it and him. Further, by s.128(2), special notice is required of any resolution
to remove a director. The section also provides some protection for the director being removed by giving him the right to make
a written representation and to have it sent to the members before the meeting. He also has the right to attend and speak at
the meeting.
By s.128(8), a director of a public company cannot be removed by, or be required to vacate his office by reason of, any
resolution, request or notice of the directors or any of them, notwithstanding anything in the articles or any agreement.
In the given problem, Ah Chong was purportedly removed by a notice signed by the directors, Baloo, Cindy and Dodo. As stated
above, such notice will not be valid under s.128 and will not be effective to remove a director of a public company.
Thus Ah Lee may be advised that the removal of Ah Chong is not valid.
10 This question on company law, which contains four parts, tests the candidates’ knowledge and application of the rules relating to
payment of dividends.
Roogi Bhd may be advised as follows:
(a)
One of the cardinal principles in company law is that dividends may only be paid from profits and not out of capital. By
s.365(1) of the Companies Act 1965, no dividend shall be payable to the shareholders of any company except out of profits
or pursuant to s.60. Section 60 relates to the share premium account, which is regarded as capital. Hence it appears at first
glance that dividends may be paid out of capital.
However, a closer examination of s.60 shows that the share premium account may only be utilised for the payment of
dividends, if such dividends are satisfied by the issue of shares to members of the company. See s.60(3)(c).
Therefore, Roogi Bhd cannot pay cash dividends to members utilising the share premium account.
(b)
Roogi Bhd cannot utilise the profits of its subsidiary, Kaya Bhd, to pay dividends to its (Roogi Bhd’s) members. The rule is
that the profits out of which the dividend is to be paid must be the profit of the company declaring the dividend. Although a
company is managed as part of a group, each company, being a separate legal entity, is treated separately for the purpose of
paying dividends. See: Industrial Equity Ltd v Blackburn (1977).
(c)
It has been well-established by case law that a company may pay dividends out of current revenue profits without making good
previous years’ losses. Each accounting period is treated in isolation and not as part of a continuous process. See: Ammonia
Soda Co Ltd v Chamberlain (1918).
Therefore, Roogi Bhd may, in the event it makes revenue profits next year, utilise those profits to pay dividends for that year
without offsetting the revenue losses for the previous years.
(d)
Cermat may be advised that if dividends are paid out of capital, every director who willfully pays or permits such dividends
to be paid, shall be guilty of an offence under the Companies Act 1965. Further, the director concerned shall be liable to the
creditors of the company as provided in s.365(2)(b) Companies Act 1965.
12
Fundamentals Level – Skills Module, Paper F4 (MYS)
Corporate and Business Law (Malaysia)
1
2
3
June 2010 Marking Scheme
(a)
0–3
An accurate answer clearly explaining the literal rule of interpretation will fall into the upper part of this band while an
incomplete or inaccurate one will fall into the lower part.
(b)
0–3
An accurate answer clearly explaining the ejusdem generis rule of interpretation will fall into the upper part of this band
while an incomplete or inaccurate one will fall into the lower part.
(c)
0–4
An accurate answer clearly explaining the mischief rule in relation to statutory interpretation will fall into the upper part
of this band while an incomplete or inaccurate one will fall into the lower part.
(a)
(i)
0–2
An accurate answer clearly explaining what is redundancy in the context of employment law will fall into the upper
part of this band while an inaccurate one will fall into the lower part.
(ii)
0–4
One mark for each of the four situations in which redundancy is said to occur.
(b)
0–4
One mark for each correctly stated period of notice and one mark for accompanying explanation.
(a)
3–5
Good to excellent answer explaining what is actual authority of an agent in the context of the law of agency.
0–2
Incomplete or inaccurate answer.
3–5
Good to excellent answer explaining what is ostensible authority of an agent in the context of the law of agency.
0–2
Incomplete or inaccurate answer.
(b)
4
0–10
2 marks for each advantage of incorporation correctly explained.
5
(a)
0–3
An accurate answer correctly distinguishing the memorandum of association from the articles of association will fall into
the upper part of this band while an incomplete or inaccurate one will fall into the lower part.
(b)
0–3
One mark for each matter correctly stated.
(c)
0–4
Two marks for each restriction correctly explained.
(a)
0–2
An accurate answer correctly explaining the remedy of specific performance will fall into the upper part of this band
while an inaccurate one will fall into the lower part.
(b)
0–2
One mark for each situation in which the court may grant specific performance.
(c)
0–6
One mark for each situation in which the court may not grant specific performance.
(a)
0–4
An accurate answer correctly explaining what is corporate governance, with reference to the High Level Finance
Committee on Corporate Governance will fall into the upper part of this band while an inaccurate one will fall into the
lower part.
(b)
0–6
One mark for each of the six responsibilities of the board correctly stated.
(a)
3–5
Good to excellent answer correctly identifying the issue of invitation to treat as opposed to an offer, with correct application
to the problem and accurate advice to Aminah.
0–2
Incomplete or inaccurate answer.
3–5
Good to excellent answer correctly identifying the issue of counter-offer as opposed to an acceptance, with correct
application to the problem and accurate advice to Lim.
0–2
Incomplete or inaccurate answer.
6
7
8
(b)
13
9
(a)
3–4
Good to excellent answer correctly identifying the issue of non-compliance with the requirement of s.132D of the
Companies Act 1965 with accurate advice to Ah Lee.
0–2
Incomplete or inaccurate answer.
(b)
0–3
An accurate answer with reference to s.129 of the Companies Act 1965 with correct advice to Ah Lee will fall into the
upper part of this band while an inaccurate one will fall into the lower part.
(c)
0–3
An accurate answer with reference to s.128 of the Companies Act 1965 with correct advice to Ah Lee will fall into the
upper part of this band while an inaccurate one will fall into the lower part.
10 (a)
0–3
An accurate answer with reference to relevant authority and with correct advice to Cermat in the given situation will fall
into the upper part of this band while an inaccurate one will fall into the lower part.
(b)
0–2
An accurate answer with reference to relevant authority and with correct advice to Cermat in the given situation will fall
into the upper part of this band while an inaccurate one will fall into the lower part.
(c)
0–2
An accurate answer with reference to relevant authority and with correct advice to Cermat in the given situation will fall
into the upper part of this band while an inaccurate one will fall into the lower part.
(d)
0–3
An accurate answer with reference to relevant authority and with correct advice to Cermat in the given situation will fall
into the upper part of this band while an inaccurate one will fall into the lower part.
14
Fundamentals Level – Skills Module, Paper F4 (MYS)
Corporate and Business Law (Malaysia)
1
June 2010 Answers
This question tests the candidates’ knowledge on three specific rules of statutory interpretation, viz, the literal rule, the ejusdem
generis rule and the mischief rule.
(a)
The literal rule
This is a rule by which a word or phrase is given its literal or ordinary grammatical meaning. According to this rule, if the words
of the statute are in themselves precise and unambiguous they must be expounded in their natural and ordinary sense. This
rule is very commonly used and sometimes appears to give a result contrary to the intention of Parliament. The case Fisher v
Bell (1961) is a good illustration of the application of this rule. In this case a shopkeeper was charged under the Restriction
of Offensive Weapons Act 1959 for offering for sale certain weapons, including ‘flick knives’, by displaying these knives in a
shop window. The court held, applying the literal rule, that the display was not an offer for sale but merely an invitation to
treat. Thus, the shopkeeper was held not guilty. The courts in Malaysia have also adopted this rule. This may be illustrated
by the case of Kon Fatt Kiew v PP (1935), where the court held, applying the literal rule, that ‘rubber’ includes ‘scrap rubber’.
Another relevant case is Foo Yoke Ling & Anor v Television & Ors (1985), where the provisions of the Copyright Act 1969 were
interpreted by applying the literal rule.
(b)
The ejusdem generis rule
This is the rule by which, where a general word follows a class of specific words, the general word is interpreted to refer to
words of that class only. This rule was adopted by the High Court in the case of Public Prosecutor v Pengurus Hong Trading
& Co (1985), where the relevant part of the statute referred to a prohibition on tea containing any ‘Prussian blue, or lead or
any compounds of lead or other matter …’. The question was as to the interpretation of ‘other matter’. The court applied the
ejusdem generis rule and held that ‘other matter’ referred to things of the same category as ‘Prussian blue, lead or compounds
of lead’.
(c)
The mischief rule
This rule facilitates the court to interpret words or phrases which are unclear and ambiguous in the light of the statute as
a whole. In such cases the courts will enquire into the ‘mischief’ behind the statute. i.e. the court will look into the overall
intention of the legislature as discovered from a reading of the statute as a whole. The matters that the court must consider
were laid down in Heydon’s Case (1584) as follows:
(i)
(ii)
(iii)
(iv)
What was the common law prior to the Act?
What was the mischief and deficiency for which the common law did not provide?
What was the remedy that Parliament had provided for?
What was the true reason for the remedy?
This rule has been applied by the Malaysian courts in Lim Moh Joo v PP (1970).
In this case the Criminal Procedure Code required the Public Prosecutor to deliver a copy of a report to the accused not less than
ten clear days before the commencement of the trial. The issue was whether the same procedure applied when the prosecution
was by a private person. The court held that it did, saying that this was a case where the court must modify the language of
the law to meet what must have been the intention of the legislature.
2
This question tests the candidates’ knowledge on ‘redundancy’ in the context of employment law as well as the periods of notice
required for the termination of a contract of service.
(a)
(i)
Redundancy, in the context of employment law, refers to a situation where an employer has surplus of labour and has to
downsize his labour force.
(ii)
A redundancy may be said to occur in the circumstances mentioned in s.12 (3) (a) – (d) of the Employment Act 1955
i.e. where:
(1) The employer has ceased, or intends to cease to carry on the business for the purposes of which the employee was
employed;
(2) The employer has ceased or intends to cease to carry on the business in the place at which the employee was
contracted to work;
(3) The requirements of that business for the employee to carry out work of a particular kind have ceased or diminished,
or are expected to cease or diminish; or
(4) The requirements of that business for the employee to carry out work of a particular kind in the place at which he
was contracted to work have ceased or diminished or are expected to cease or diminish.
Relevant cases are: Food Specialities Sdn Bhd v Esa bin Mohamad (Award 74 of 1989); Gold Coins Feedmills Sdn
Bhd v Ibrahim Shah (Award 657 of 2001) and PBR Automotive Sdn Bhd v Subramaniam Andi & Others (Award 237
of 2002).
7
(b)
Section 12(1) of the Employment Act 1955 states that either party to a contract of service may terminate it by giving to the
other notice of his intention to do so. By s.12(2) the length of notice, which must be the same for the employer and the
employee, shall be determined by any provision in writing for such notice in the terms of the contract of service. In the absence
of such provision in writing, the notice shall not be less than the statutory minimum which is:
(i) four weeks’ notice if the employee has been employed for less than two years;
(ii) six weeks’ notice if the employee has been employed for two years or more but less than five years;
(iii) eight weeks’ notice if he has been employed for five years or more.
However, it must be noted that s.12(2) does not prevent either party from waiving his right to a notice under the sub-section.
3
This question tests the candidates’ knowledge on the law of agency in relation to an agent’s scope of authority, both actual as well
as ostensible authority.
(a)
Actual authority
Actual authority refers to the authority that is given to an agent by agreement. Actual authority comprises both express authority
as well as implied authority. Express authority may be given either orally or in writing (see ss.140 and 141 of the Contracts Act
1950). For example, if the principal appoints an agent with express instructions to buy for him a piece of land at a price not
exceeding RM100,000, then the agent’s actual authority is to purchase such land for any price not exceeding RM100,000.
The principal will be bound so long as the agent has acted within this express authority.
Actual authority also includes those matters that may be properly implied in the circumstances. For example, the implied
authority will include all such powers as are proper or necessary to carry out the express instructions of the principal. Thus, in
the example given earlier, if the agent has to obtain the services of a valuer in order to assess the true value of the property, the
principal will be bound to pay for the services of the valuer so incurred.
Implied authority may also arise from:
(i) the circumstances of the case,
(ii) the custom or usage of trade, or,
(iii) the situation or conduct of the parties.
The case of Watteau v Fenwick (1893), serves as an example. In this case, the defendant appointed a manager to run a public
house and the licence, which appeared over the door, was taken out in the manager’s name. The manager was forbidden by
the defendant to buy cigars on credit. In disregard of this the manager bought cigars from the plaintiff, who now sued for the
price. It was held that the defendant as principal was liable because a manager of a public house would usually have authority
to make purchases of that kind, and the plaintiff could rely on such usual authority in the absence of express knowledge of the
restrictions imposed by the principal.
See also: Tunku Ismail bin Md Jewa & Anor v Tetuan Hisham, Sobri and Kadir (1989).
(b)
Ostensible authority
Ostensible authority (which is sometimes also referred to as apparent authority), refers to the authority which the agent is said
to have as a result of the principal’s words or conduct which leads a third party to believe that the agent has the authority to
act on behalf of the principal. This is clearly illustrated in s.190 of the Contracts Act 1950.
Ostensible authority may also arise where the agent has previously acted on behalf of the principal, but such authority had been
terminated by the principal, without notice to the third party.
Where ostensible authority arises, the agent is presumed to have the authority that the principal causes him to appear to
have. The element of estoppel applies as the principal is precluded from denying that the agent had such authority. The case
of Graphic Lines Pte Ltd v Chai Chee Mein and Ors (1987) serves as an example. In this case, the assistant manager of a
nightclub had placed advertisements for the nightclub with the plaintiffs. He did not have the actual authority to do so but the
general manager, who was one of the partners of the nightclub had represented to the plaintiffs that advertisements should be
authorised through the assistant manager. Since the general manager had actual authority to authorise the assistant manager
to place advertisements on behalf of the club, the defendants were bound by his act. It was clear that the assistant manager
had apparent authority to place such advertisements.
It must be noted that where the third party knew, or ought to have known, that the agent did not have the authority in question,
he cannot rely on apparent authority of the agent to enforce the transaction. See: Overbrook Estates v Glencombe Properties
Ltd (1974).
8
4
This question tests the candidates’ on the advantages of incorporating a company as opposed to other forms of business
organisation.
There are many advantages of incorporating a company under the Companies Act 1965 as opposed to carrying on unincorporated
businesses such as a partnership or a sole proprietorship.
The most significant advantage of incorporating a company is that upon incorporation the company becomes in law a separate
legal entity distinct from its members and other stakeholders. This has been firmly established in the well-known case of Salomon
v Salomon & Co Ltd (1897), where the House of Lords held that even though Salomon was in reality in absolute control of the
company, upon incorporation the company was clothed with a legal personality distinct and separate from Salomon and the other
shareholders. Thus Salomon could also be a secured creditor of the company and a secured debenture issued in his favour could
have priority over the unsecured creditors. This position is clearly recognised in Malaysia under s.16(5) of the Companies Act
1965.
Consequently upon the company being regarded as a separate legal entity, incorporation of a company brings with it several other
advantages over unincorporated businesses. These may be summarised as follows:
(i)
The company can sue and be sued in its own name. As the company is a legal person (though an artificial one) it has the right
to institute legal proceedings in its own name.
(ii)
Property of the company belongs to the company and not its members. As the company is a separate legal person, it has the
power to own property in its own name. This is quite unlike unincorporated business associations, where the property may
have to be registered in the names of some or all of its members.
See: Macaura v Northern Assurance Co Ltd (1925).
(iii) A company may be formed with limited liability. This means that the members of the company will not be liable for the debts
of the company beyond the amount of capital they had agreed to subscribe. This is quite unlike an unincorporated association
where the members will be liable to the full extent of its debts.
(iv) A registered company, if formed as a public company, may raise capital from the public, provided it satisfies the requirements of
the Companies Act 1965 and the other specific legislation. Unincorporated associations cannot raise funds from the public.
(v)
The company is said to enjoy perpetual succession. This means that the company will continue to exist despite the death of its
members. This is different from a partnership, where the death of a partner will result in a dissolution of the partnership unless
the partnership agreement shows a contrary intention.
(vi) The company enjoys a privilege in relation to borrowing. It is allowed to give security in the form of a floating charge, unlike
individuals and a partnership. Such a charge allows the company to continue using the assets in the ordinary course of its
business. This type of charge cannot be created by individuals and partnerships.
(Note: Candidates are only required to explain any FIVE advantages.)
5
This question on company law tests the candidates’ knowledge on certain basic aspects of the memorandum and articles of
association, as well as the restrictions on the alteration of the memorandum.
(a)
The memorandum and the articles of association of a company are often referred to as the constitution of the company. These
two documents may be distinguished in that the memorandum of association contains those matters which are more important
to third parties dealing with the company, such as the name of the company and its objects clause. On the other hand, the
articles of association contains those matters which relate to the internal management of the company, such as procedure at
meetings and rights of members to transfer their shares and which are more important to persons within the company, for
example, members and directors.
(b)
Section 18 of the Companies Act 1965 requires the memorandum of every company to contain the following:
(i) A name clause, stating the name of the company;
(ii) An objects clause, stating the objects of the company;
(iii) A capital clause, stating the amount of share capital with which the company proposes to be registered, unless it is an
unlimited company;
(iv) A liability clause, stating whether the liability of the members is limited or unlimited, and if limited, whether it is limited
by shares or by guarantee.
(v) A subscriber clause, stating the full names, addresses and occupations of the subscribers to the memorandum.
(vi) An association clause, stating that the subscribers are desirous of being formed into a company in pursuance of the
memorandum and (where the company is to have a share capital) and respectively agree to take the number of shares in
the capital of the company set out opposite their respective names.
(Note: Candidates are only required to state THREE of the above matters.)
(c)
The restrictions are as follows:
(i)
By s.21(1) of the Companies Act 1965, the memorandum of a company may only be altered to the extent and in the
manner provided by the Companies Act itself. Thus, for example, the objects clause in the memorandum of association
may be altered by special resolution as provided under s.28.
9
(ii)
Further, by s.21(1A), a provision of the memorandum of a company which could lawfully have been in the articles of the
company, may be altered or deleted by special resolution. However, such an alteration is not possible if the memorandum
itself prohibits the alteration or deletion of that provision.
(iii) Further, under s.21(1A) stated above, the alteration or deletion of a provision of the memorandum that relates to rights to
which only members included in a particular class of members are entitled, is not permitted. Thus class rights inserted
into the memorandum of association cannot be altered. This is the effect of s.21(1B).
6
This question on contract law, tests the candidates’ knowledge on specific performance as a remedy for breach of contract as well
as the circumstances in which the court may, or may not, grant such a remedy.
(a)
Specific performance is an order of the court requiring the party who is in breach of the contract to perform his part of the
contract exactly as he had promised.
Specific performance is an equitable remedy as it was first recognised by the courts of equity. It is granted at the discretion of
the courts. In Malaysia the remedy of specific performance is provided for under the Specific Relief Act 1950.
(b)
By s.11 (1) Specific Relief Act 1950, specific performance of any contract may be granted at the discretion of the court in the
following circumstances:
(i)
When the act agreed to be done is in the performance wholly or in part of a trust. For example, A holds certain stock
in trust for B. A wrongfully disposes of the stock. B may sue for specific performance, compelling A to repurchase the
shares.
(ii)
Where there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to
be done.
For example, A agrees to buy and B agrees to sell, a picture by a dead painter and two rare China vases. A may
obtain specific performance as there is no standard for ascertaining the actual damage which would be caused by its
non-performance.
(iii) When the act agreed to be done is such that pecuniary compensation for its non-performance would not afford adequate
relief. For example, a contract of sale of land.
(Note: Candidates are only required to state TWO of the circumstances above.)
(c)
Section 20 Specific Relief Act 1950 stipulates that the following contracts cannot be specifically enforced:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
A contract for the non-performance of which compensation in money is an adequate relief;
A contract which runs into such minute or numerous details or which is so dependent on the personal qualifications,
or volition of the parties, or otherwise from its nature is such that the court cannot enforce specific performance of its
material terms;
A contract the terms of which the court cannot find with reasonable certainty;
A contract which is in its nature revocable;
A contract made by trustees either in excess of their powers or in breach of their trust;
A contract made by or on behalf of a corporation or public company created for special purposes or by the promoters of
the company, which is in excess of its powers;
A contract which involves the performance of a continuous duty extending over a longer period than three years from its
date; and
A contract of which a material part of the subject-matter supposed by both parties to exist, has, before it has been made,
ceased to exist.
(Note: Candidates are only required to state SIX of the circumstances above.)
7
This question on corporate governance tests the candidates’ knowledge on the meaning of corporate governance as well as the
principal responsibilities of the board of directors in relation to Best Practices in Corporate Governance, as recommended in the Code
on Corporate Governance.
(a)
Corporate governance may be said to refer to the set of processes, customs, policies, laws and rules affecting the way a
corporation is directed, administered or controlled. It also includes the relationships among the many persons who have a stake
in the company (the stakeholders) and the goals for which the corporation is governed.
In Malaysia, the High Level Finance Committee Report on Corporate Governance defined corporate governance as, ‘the process
and structure used to direct and manage the business and affairs of the company towards enhancing business prosperity
and corporate accountability with the ultimate objective of realising long-term shareholder value, whilst taking into account
the interests of other stakeholders’. In essence, proper corporate governance is a set of principles and best practices, which
a company should follow to achieve the purposes indicated by the High Level Finance Committee Report on Corporate
Governance.
10
(b)
The principal responsibilities of the board of directors in relation to Best Practices in Corporate Governance, as recommended
in the Code on Corporate Governance, are as follows:
(i)
(ii)
(iii)
(iv)
Reviewing and adopting a strategic plan for the company;
Overseeing the conduct of the company’s business to evaluate whether the business is being properly managed;
Identifying principal risks and ensuring the implementation of appropriate systems to manage these risks;
Succession planning, including appointing, training, fixing the compensation of and where appropriate, replacing senior
management;
(v) Developing and implementing an investor relations programme or shareholder communications policy for the company;
and
(vi) Reviewing the adequacy and the integrity of the company’s internal control systems and management information
systems, including systems for compliance with applicable laws, regulations, rules, directives and guidelines.
8
This problem-based question on contract law contains two parts. Part (a) tests the candidates’ ability to identify the issue of
an invitation to treat as opposed to an offer and to apply the law to the given problem. Part (b) relates to the identification and
application of the issue of counter-offer as opposed to an acceptance.
(a)
In order for a valid agreement to arise there must be a proposal (offer) and an acceptance of that offer.
A proposal (offer) is said to be made when one person signifies to another his willingness to do, or abstain from doing anything,
with a view of obtaining the assent of that other to the act or abstinence: s.2(a) Contracts Act 1950.
An offer must be distinguished from an invitation to treat. While an offer may be accepted giving rise to an agreement, an
invitation to treat is only an offer to receive an offer, i.e. it is an invitation to another to make an offer. Examples of invitations
to treat are advertisements and displays in shop windows.
A case in point is Pharmaceutical Society of Great Britain v Boots Cash Chemist Ltd (1953). In this case the defendants were
charged with selling certain poisons in contravention of the Pharmacy and Poisons Act 1933. The question was whether a sale
had occurred when a customer in a self-service shop selected certain items which he desired to purchase and placed them in
a wire basket. The court held that the display in the shop only amounted to an invitation to treat. A proposal to purchase was
made when the customer selected the items he wanted to purchase. A sale would occur only when the cashier accepted the
customer’s money.
Another relevant case is Eckhardt Marine GMBH v Sheriff, High Court of Malaya, Seremban & Ors (2001). In this case, the
sheriff of the High Court of Malaya, Seremban, had arrested a motor vessel and later put it up for sale through an advertisement.
Among other things, the court held that the advertisement only amounted to an invitation to treat.
Applying the above law to the given facts, Aminah may be advised that there is no binding agreement for the purchase of the
vacuum cleaner at the price of RM100. The advertisement in the newspaper was only an invitation to treat. When Aminah
selected the vacuum cleaner and brought it to the payment counter to pay, she was in law only making a proposal to purchase
the vacuum cleaner, which the supermarket (through the salesperson at the payment counter) was free not to accept.
(b)
An agreement will arise where one party has made a proposal (offer) to another party and that other has unconditionally
accepted it. See: ss.2(a) and (b) Contracts Act 1950.
By s.7(a) the acceptance must be ‘absolute and unqualified’. In the event the person to whom the proposal is made varies the
terms of the proposal, he is deemed to be making a counter-proposal (counter-offer). A counter-offer has the effect of destroying
the original offer.
This is well illustrated in the case of Hyde v Wrench (1840). In this case the defendant offered to sell his estate to the plaintiff
for £1,000. The plaintiff replied by letter that he was willing to purchase at £950. When the defendant did not reply, the
plaintiff sent another letter to the defendant accepting the original offer price. The court held that there was no contract between
the parties. The counter-offer made by the plaintiff destroyed the original offer. Reference may also be made to the Malaysian
case of Malayan Flour Mills Bhd v Saw Eng Chee (Administrator of the estate of Saw Cheng Chor, deceased) & Anor (1997),
which applied the above principle.
In the given situation, Lim’s letter to Hanim stating that he was willing to buy the shares at RM2·00 per share clearly amounted
to a counter-offer.
Applying the law to the given problem, Lim may be advised that he will not be successful if he sues Hanim for breach of
contract.
9
This problem-based question on company law contains three parts. Part (a) tests the candidates’ ability to identify and apply the law
concerning the restriction on the power of directors to issue shares. Part (b) tests them on the issue of whether the acts of over-aged
directors can bind the company and part (c) tests them on the issue of removal of directors of public companies.
(a)
The validity of the issue by the directors of 500,000 shares to their friend Kam Cheng can be challenged on the ground that it
is in contravention of s.132D(1) of the Companies Act 1965. By this section, the directors of a company cannot, without the
approval of the company in a general meeting, exercise any power of the company to issue shares. This is subject to certain
exceptions which do not apply to the present problem.
11
By s.132D(6), any issue of shares made by a company in contravention of s.132D(1) is void and the consideration given for
the shares is recoverable.
Ah Lee may be advised accordingly.
(b)
By s.129(1) of the Companies Act 1965, the general rule is that no person of, or over, the age of 70 years may be appointed
or act as a director of a public company, or a subsidiary of a public company.
As the name of the company is Susah Bhd, it is clear that it is a public company. Thus, Cindy, who is 71 years old, is
disqualified to act as a director unless she has in fact been appointed or re-appointed by the special procedure stated in
s.129(6).
However, whether or not she has been appointed or re-appointed by the special procedure is irrelevant to the issue of validity of
the acts done by such a disqualified director on behalf of the company. This is because by s.129(3), any act done by a person
as director shall be valid notwithstanding that it is afterwards discovered that there was a defect in his appointment.
Thus, Ah Lee may be advised that the contract for the purchase of office stationery cannot be invalidated on the ground that
Cindy was disqualified to act as a director of the company.
(c)
The procedure for removal of directors of a public company is as stated in s.128 of the Companies Act 1965. By s.128(1), a
director of a public company may be removed by an ordinary resolution in a general meeting notwithstanding anything in its
memorandum or articles, or any contract between it and him. Further, by s.128(2), special notice is required of any resolution
to remove a director. The section also provides some protection for the director being removed by giving him the right to make
a written representation and to have it sent to the members before the meeting. He also has the right to attend and speak at
the meeting.
By s.128(8), a director of a public company cannot be removed by, or be required to vacate his office by reason of, any
resolution, request or notice of the directors or any of them, notwithstanding anything in the articles or any agreement.
In the given problem, Ah Chong was purportedly removed by a notice signed by the directors, Baloo, Cindy and Dodo. As stated
above, such notice will not be valid under s.128 and will not be effective to remove a director of a public company.
Thus Ah Lee may be advised that the removal of Ah Chong is not valid.
10 This question on company law, which contains four parts, tests the candidates’ knowledge and application of the rules relating to
payment of dividends.
Roogi Bhd may be advised as follows:
(a)
One of the cardinal principles in company law is that dividends may only be paid from profits and not out of capital. By
s.365(1) of the Companies Act 1965, no dividend shall be payable to the shareholders of any company except out of profits
or pursuant to s.60. Section 60 relates to the share premium account, which is regarded as capital. Hence it appears at first
glance that dividends may be paid out of capital.
However, a closer examination of s.60 shows that the share premium account may only be utilised for the payment of
dividends, if such dividends are satisfied by the issue of shares to members of the company. See s.60(3)(c).
Therefore, Roogi Bhd cannot pay cash dividends to members utilising the share premium account.
(b)
Roogi Bhd cannot utilise the profits of its subsidiary, Kaya Bhd, to pay dividends to its (Roogi Bhd’s) members. The rule is
that the profits out of which the dividend is to be paid must be the profit of the company declaring the dividend. Although a
company is managed as part of a group, each company, being a separate legal entity, is treated separately for the purpose of
paying dividends. See: Industrial Equity Ltd v Blackburn (1977).
(c)
It has been well-established by case law that a company may pay dividends out of current revenue profits without making good
previous years’ losses. Each accounting period is treated in isolation and not as part of a continuous process. See: Ammonia
Soda Co Ltd v Chamberlain (1918).
Therefore, Roogi Bhd may, in the event it makes revenue profits next year, utilise those profits to pay dividends for that year
without offsetting the revenue losses for the previous years.
(d)
Cermat may be advised that if dividends are paid out of capital, every director who willfully pays or permits such dividends
to be paid, shall be guilty of an offence under the Companies Act 1965. Further, the director concerned shall be liable to the
creditors of the company as provided in s.365(2)(b) Companies Act 1965.
12
Fundamentals Level – Skills Module, Paper F4 (MYS)
Corporate and Business Law (Malaysia)
1
2
3
June 2010 Marking Scheme
(a)
0–3
An accurate answer clearly explaining the literal rule of interpretation will fall into the upper part of this band while an
incomplete or inaccurate one will fall into the lower part.
(b)
0–3
An accurate answer clearly explaining the ejusdem generis rule of interpretation will fall into the upper part of this band
while an incomplete or inaccurate one will fall into the lower part.
(c)
0–4
An accurate answer clearly explaining the mischief rule in relation to statutory interpretation will fall into the upper part
of this band while an incomplete or inaccurate one will fall into the lower part.
(a)
(i)
0–2
An accurate answer clearly explaining what is redundancy in the context of employment law will fall into the upper
part of this band while an inaccurate one will fall into the lower part.
(ii)
0–4
One mark for each of the four situations in which redundancy is said to occur.
(b)
0–4
One mark for each correctly stated period of notice and one mark for accompanying explanation.
(a)
3–5
Good to excellent answer explaining what is actual authority of an agent in the context of the law of agency.
0–2
Incomplete or inaccurate answer.
3–5
Good to excellent answer explaining what is ostensible authority of an agent in the context of the law of agency.
0–2
Incomplete or inaccurate answer.
(b)
4
0–10
2 marks for each advantage of incorporation correctly explained.
5
(a)
0–3
An accurate answer correctly distinguishing the memorandum of association from the articles of association will fall into
the upper part of this band while an incomplete or inaccurate one will fall into the lower part.
(b)
0–3
One mark for each matter correctly stated.
(c)
0–4
Two marks for each restriction correctly explained.
(a)
0–2
An accurate answer correctly explaining the remedy of specific performance will fall into the upper part of this band
while an inaccurate one will fall into the lower part.
(b)
0–2
One mark for each situation in which the court may grant specific performance.
(c)
0–6
One mark for each situation in which the court may not grant specific performance.
(a)
0–4
An accurate answer correctly explaining what is corporate governance, with reference to the High Level Finance
Committee on Corporate Governance will fall into the upper part of this band while an inaccurate one will fall into the
lower part.
(b)
0–6
One mark for each of the six responsibilities of the board correctly stated.
(a)
3–5
Good to excellent answer correctly identifying the issue of invitation to treat as opposed to an offer, with correct application
to the problem and accurate advice to Aminah.
0–2
Incomplete or inaccurate answer.
3–5
Good to excellent answer correctly identifying the issue of counter-offer as opposed to an acceptance, with correct
application to the problem and accurate advice to Lim.
0–2
Incomplete or inaccurate answer.
6
7
8
(b)
13
9
(a)
3–4
Good to excellent answer correctly identifying the issue of non-compliance with the requirement of s.132D of the
Companies Act 1965 with accurate advice to Ah Lee.
0–2
Incomplete or inaccurate answer.
(b)
0–3
An accurate answer with reference to s.129 of the Companies Act 1965 with correct advice to Ah Lee will fall into the
upper part of this band while an inaccurate one will fall into the lower part.
(c)
0–3
An accurate answer with reference to s.128 of the Companies Act 1965 with correct advice to Ah Lee will fall into the
upper part of this band while an inaccurate one will fall into the lower part.
10 (a)
0–3
An accurate answer with reference to relevant authority and with correct advice to Cermat in the given situation will fall
into the upper part of this band while an inaccurate one will fall into the lower part.
(b)
0–2
An accurate answer with reference to relevant authority and with correct advice to Cermat in the given situation will fall
into the upper part of this band while an inaccurate one will fall into the lower part.
(c)
0–2
An accurate answer with reference to relevant authority and with correct advice to Cermat in the given situation will fall
into the upper part of this band while an inaccurate one will fall into the lower part.
(d)
0–3
An accurate answer with reference to relevant authority and with correct advice to Cermat in the given situation will fall
into the upper part of this band while an inaccurate one will fall into the lower part.
14
