problem set 5 question 5

8/8/2019 Problem Set 5 Question 5

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Nurulalsah Hj Hassan AlbanGP00820

Fakulti Undang-UndangLaw Faculty


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Problem Set 5Problem Set 5Question 5Question 5

UK6043

Undang-Undang dan Amalan Syarikat

Company Law andPractice

Prof. Dr.Aishah Bidin


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PartiesParties

1. SUBCO

o UnlistedPublic Company

o Subsidiary ofLISTCO

2. LISTCO

o ListedPublic Company

o Owns 73% ofSUBCOs ordinary shares

3. Tang Familyo Owns 23% SUBCOs ordinary shares

o Representedby Director Tommy Tang


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FactsFacts

y At first, LISTCO passed a resolution to

instruct SUBCO to acquire a business in

North America but was rejected by

SUBCOs board of directors.

y The Proposal was reformulated and put

into SUBCOs board of directors again

and was accepted by majority ofdirectors.


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Facts (Cont)Facts (Cont)

y Tang Family thought that SUBCO was

willing to endorse anything LISTCO

proposed without assessing its merit.

(Rubber-stamp)

y According to Tangs solicitor, LISTCO

may be treated as a director for SUBCO

and subject to statutory duties thatapply to company directors.


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IssuesIssues

1. Can LISTCO be treated as a

director?

2. Whether SUBCO was submissive to

LISTCOs instruction.

3. Whether LISTCO was acting as a

director.


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Issue 1Issue 1 ListcoListco as Director?as Director?

Definition

-Section 4 ofthe Companies Act 1965-

includes any person occupying the positionof a director of a corporation by whatever

name called and includes a person in

accordance with whose directions orinstructions the directors of a corporation areaccustomed to act


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STATUTORY PROVISIONSTATUTORY PROVISIONFOR A CORPORATION ASFOR A CORPORATION AS

A DIRECTORA DIRECTOR


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Section 122 (2) ofCASection 122 (2) ofCA

y No personother than a

natural personoffull ageshall be a directorofa

company.


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Section 122 (5) ofCASection 122 (5) ofCA

On the commencement ofthis Act any

corporation which holds office as a

directorofa company shall cease to

holdoffice

Only natural personnot a corporation


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What is the reality?What is the reality?

y From the interpretationofSection 4 ofCA , 3 main types ofdirector canbecategorized.

1) Properly appointed

2) De factonot validly appointed, act as

3) Shadow cannot be validly appointed, does not claimtobe a directorbut whose wishes are habitually/frequently acted uponby the boardofdirectors


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y Yes, a corporation can still be treated as a

director of another company BUT dependswholly on the facts ofeach case.

From judicial pronouncements the following

may be summarized as the essential

elements to establish the existence of defacto and shadow directors;


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PersonPerson

y He may be a natural or corporate person.

Case:

1.1. Re A Company (Ex ParteRe A Company (Ex Parte CoppCopp) [1989]) [1989]

BCLC 13BCLC 13

2.2. Standard Chartered BankofStandard Chartered BankofAustAust Ltd. VLtd. V

AnticoAntico (1995) 13 ACLC 1381(1995) 13 ACLC 1381


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Directions or InstructionsDirections or Instructions

y He gives directions and instructions in

relation to the company that canonly be

dischargedby a director.

Case:

1. Ho v Akai Pty Ltd (in LIQ) [2006]FCAFC 159


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Accustomed to ActAccustomed to Act

y There is a pattern established in that the

instructions, or directions of the

shadow director is customarily adhered

toby the de jure* directors.

*concerningfact


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Bank was held liable as shadow director of

a company on the grounds that the bank

had used its position as debenture holders

to play a controlling role in the affairs of

the company.

Re A CompanyRe A Company(Ex Parte(Ex Parte CoppCopp) [1989] BCLC 13) [1989] BCLC 13


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Court held a holding company liable as a shadow

director of its subsidiary on the basis of the

controlling role it exercised over the board of

directors of its subsidiary.

Standard Chartered BankofStandard Chartered BankofAustAust Ltd. VLtd. V AnticoAntico

(1995) 13 ACLC 1381(1995) 13 ACLC 1381


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Can a Corporationbe treated as aCan a Corporationbe treated as a

Director?Director?

YES!

Can LISTCO be treated as a Director?Can LISTCO be treated as a Director?

Yes, ifcontrollingrolecanbe established.

controllingrole


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Issue 2Issue 2 -- Was SUBCO submissive toWas SUBCO submissive to

LISTCO?LISTCO?

y In the past, SUBCO rejected the same

proposal.

y It establishes that SUBCO and LISTCOdirectors practiced independent freewill

judgement.

y There is no consistency to accustomedto act by SUBCO to the instructions of

LISTCO.


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SUBCO was not submissive to

the demands and instructions

ofLISTCO.


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Issue 3Issue 3 Was LISTCO acting as aWas LISTCO acting as a

Shadow Director?Shadow Director?

Must establish controllingrole.

1. The same proposal was forwarded 2times; First rejected, and laterreformulated accepted.

Not controlling but

bargaining or diplomacy


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Cont.Cont. Controlling RoleControlling Role

2. A governing majority ofthe board mustbe accustomed to act in accordance

with the shadow directors instructionsor wishes.*

LISTCO may have strong influence over 2out of5 directors ofSUBCO. This fact doesnot make LISTCO a governing majority.

*As in Buzzle v Apple


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Directors ofSUBCODirectors ofSUBCO

y Frank Fearless Also LISTCO Director

y Barry Boon Also LISTCO Director

y Jenny JohnsonManaging Director

y Tommy Tang Former CEO ofTang Supermarkets

y Sally Stevens Lawyer and was non-Exec Director

ofTang Supermarkets before acquiredby SUBCO.


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1. Tobe a shadow director, an individual or a company must be shown to

exert control over a governing majority ofthe board.

Buzzle Operations Pty Ltd (In Liq) v

Apple Computer Aust Pty Ltd[2010] NSW 233

2. A shadow director need not influence the boards entire field of

corporate activity it is sufficient to show control over a discreteaspect ofcorporate decision-making.

3. A lender, creditor or third party will not be characterised as a shadow

director due to the imposition of certain terms and conditions,provided that the directors remain free to exercise their independent

judgment when deciding whether to comply with them.


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LISTCO was not acting as a

Shadow director to SUBCO.


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ConclusionConclusion

y The solicitor was wrong telling the Tang

family that LISTCO was to be treated

as a director.

problem set 5 question 5

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