Answering Techniques During Company Law Exam

Dear students, there are times when we enter the exam hall fully prepared (or so we think) but are confronted by fear instead…the invigilators, the big clock on the wall, the studious students who are waiting to pounce the papers…we PANICK

What happens now? One semester of hard work about to go down the drain…..maybe not…

SAV 2009

MALAYSIAN COMPANY LAW EXAM

Q1 : “Any matter not expressly or impliedly authorized by a company’s object clause would be one which would be beyond the capacity of the company or ultra vires……”

  House of Lord in the case of Ashbury Railway Carriage and Iron Co v Riche

With reference to the Companies Act 1965 and relevant case, discuss the development of doctrine of ultra vires and its application in Malaysia. (10 marks)

What you must do to answer this question ?

Scenario one: You are in exam hall - never read about this question before, so how do you answer? you have another question you know the answer better...yippee, jump to that question, don't do this question.

Scenario two : You are in exam hall - never read about this question before, so how do you answer? The other question is more difficult. You are going to try this one..

1) Don't panic

2) You know a little about ultra vires rules - start writing about it. ( we have discussed this case in class as well) - ultra vires means out side of companies’ power.

"The rule states that a contractual transaction which goes beyond a company’s corporate capacity is a void transaction. If it is held to be void, not even the unanimous consent of the company’s shareholders could validate the transaction."

3) Mention that case holds the "hallmark" of the meaning of ultra vires.....blah blah blah (continue writing)

4) You remember you read about this on chapter/topic 2 - topic 2 is about MA (Memorandum of Article), right? so talk a little about MA and write down what you think the situation Malaysia is (you don't know but try to make an intelligent guess, our Companies Act is much later than UK Companies Act, so definitely we have certain sections allocated to it to make strong i.e. company cannot act outside its power).

((Question allocates 10 marks, You would surely get at least 5 to 6 marks for this ...Bravo.

Remember its always easier the get first few marks))

Scenario three: You know the answer, this is how you should write it down

1) Write a proper intro about Ultra Vires means –

"The determination of a company’s capacity to enter into contractual obligations was historically dominated by the ultra vires rule. The rule states that a contractual transaction which goes beyond a company’s corporate capacity is a void transaction. If it is held to be void, not even the unanimous consent of the company’s shareholders could validate the transaction........"

2) Write the facts of Ashbury's case briefly....

."Ashbury Railway Carriage and Iron Co v Riche  Facts:

  The company was incorporated under the

Companies Act 1862 and had as its objects the following: "The object for which the company is established are to make and sell, or lend on hire, railway-carriages and wagons, and all kinds of railway plant, fittings, machinery, and rolling stock; to carry on the business of mechanical engineers and general contractors; to purchase and sell, as merchants, timber, coal, metals, or other materials; and to buy and sell any such materials on commission, or as agents."

Cont’ It entered into a contract to finance the building

of a railway in Belgium by Riche but later wanted to get out of the contract. It consequently argued that is was UV. In the courts below, much had turned on whether or not the transaction had been ratified because the company had an old deed of settlement clause in its articles which provided for extension of the objects

by special resolution.

Held: The House Of Lords held that the transaction was

ultra vires. The company had only such objects as were specified in its object clause. Benjamin QC had argued the ratification point but the HOL rejected this argument on the basis that the act was void and it was not possible to ratify a void act.

3) Write more explanation ....

"By acting as finance agents the company had acted ultra vires; the transaction was void. The justification for the HOLs’ strict interpretation of the CA 1862, and indeed the rationale for the UV rule, was couched in terms of both shareholder and creditor protection. The UV rule protected shareholders by allowing them a right to seek an injunction to restrain the company from entering into an UV transaction, or if a company’s main object (substratum) had failed, by allowing a shareholder to petition to the court for a winding-up order."..........“

The UV rule was not conducive to commercial business in so far as a person contracting with a company was deemed to have constructive notice of the company’s object clause. A person who dealt with a company could not therefore subsequently complain if a transaction, to which he was a party, conflicted with a company’s object clause and was avoided by the company. In an attempt to rectify the restrictive nature of the UV rule, the judiciary was, in subsequent cases, to weaken the strict approach taken by the House of Lords in Ashbury. Shortly after this case, the HOL realized that its ruling had been somewhat draconian, and in the case of A-G v Great Eastern Railway Co, it relaxed the rule by recognizing implied powers which were reasonably incidental to the carrying out of the express objects......."

4) Write about the situation in Malaysia ....compare with England....

The Position in England

The first statutory intervention was made following the recommendations of the Cohen Committee report in 1945. By the Companies Act 1948, Parliament made it possible for companies to alter their objects clause by the passing of a special resolution (today-

The Position in Malaysia

The Ultra Vires doctrine has been modified by :S4 CA 1985). Whilst this reform gave companies

more flexibility and scope to alter the direction of their corporate purposes, it obviously did not protect third parties in situations where a company entered into a new type of business venture without having altered its objects clause.

" ........... :S20(1) Companies Act 1965 which provides that “No act or purported act of a company……….and no conveyance or transfer of property ……….to or by a company shall be invalid by reason only of the fact that the company was without capacity or power to do the act or to execute or take the conveyance or transfer.?  Executive Aids Sdn Bhd v Kuala Lumpur Finance Bhd [1992] 1 MLJ 89

 

5) State the conclusion ......whatever/however you think is right you can write it down here.

                         

……………….. The End ……………….

((you will get 9 to 10 marks for this answer...))