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Company Law

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Augustina Park

on 6 December 2012

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Transcript of Company Law

Overview of the Tested Chapters Company Law Chapter 1: Introduction to Company Law Forms of Business Organizations

Sole-Proprietor
Partnership
Limited Liability Partnership
Limited Partnership
Company
Unlimited Company
Limited Company
Private Company
Public Company Chapter 2: Incorporation of Companies Incorporation Process
Effects of Incorporation
Lifting The Veil of Incorporation, Statutory Exceptions & Judicial Exceptions
Use of Company to Evade Legal Obligations or to Commit Fraud. Chapter 3: The Constitution of A Company Memorandum and Articles of Association
Contents of Memorandum
Alteration of the Memorandum of Association
Contents of the Articles
Alternation of Articles
Restrictions of Alternation of the Articles
Effect of the Memorandum and Articles
Contract between the Company and its Members
Contract among Members
Relationship between Company and Outsiders Chapter 5: Appointment and Disqualification of Directors Definition of Directors
Appointment of Directors
Qualification of Directors
Persons being disqualified from being directors
Effect of Disqualifications
Application for Leave under S.148, 149, 154, 155.
Retirement
Removal of Directors
Removal of Directors under Public Companies Chapter 5: Directors' Duties and Liabilities Directors' Duties
Fiduciary Duties
Liabilities for Breach of Directors' Duties
Statutory Duties Under Companies Act
Prohibition of Insider Trading (SFA)
Code of Corporate Governance Appointment of Directors s. 157A (1) CA:
Power of BOD s.4 (1) CA:
The director is an Officer of a corporation. s.145 (1) CA:
How many directors in a Singapore incorporated Company? s.145 (2) CA:
Natural person who is at least 18 years old with full legal capacity. Table A, Art. 72 (e):
A director must be of sound mind. Table A, Art. 71 & s. 147 CA:
A director must obtain a certain number of shares in order to qualify as a director. s.151 CA:
Acts of a director are valid Disqualification of Directors (Continuation) s.148 CA:
Undischarged bankruptcy s.149 CA:
Director that has caused a company to go into insolvency liquidation. s.149 (12) CA:
Person who contravenes a disqualification order would be liable to a fine of not exceeding $10,000 or imprisonment up to 2 years or both. s.149A CA:
Director of a company that was wound up due to National Security or interest. s. 154 (1) CA:
Person who is convicted of an offence involving fraud/dishonesty punishable with imprisonment of 3 mths or more. s.154 (2) CA:
Person convicted any offence in connection with formation/management of a corporation under s.157 CA or s. 339 CA. s.154 (3) CA:
Person disqualified under subsection (1) or (2) shall not be a director up to 5 years unless leave from court. Disqualification of Directors (Continuation) s.154 (5) CA:
Refer to s.149 (12) CA. Relevant Case: Quek Leng Chye v A-G s.155 CA:
Persons guilty of persistent default in filing returns, accounts & other documents with the Registrar on a regular basis. Chapter 8: Rights on Minority Shareholders The Majority Rule
Fraud on the minority
Exceptions to majority rule
Minority oppression
Remedies
Relief The Majority Rule General Rule : Decision of the majority will always be binding on the minority.

Case : Foss v Harbottle (1843)

The court will not change the decision of the majority if it has been made honestly.

Only when the majority rule becomes oppression, the law will step in to protect the minority - S216 CA Fraud on the minority a. The appropriation by the majority to themselves of the company's money, property or advantages which belong to the company (Cooks v Deeks)

b. Majority obtaining a benefit at the expense of the company (Daniels v Daniels)

c. Majority using their power to prevent an action being brought against them by the company (Estmanco Ltd v Greater London Council Exceptions to Majority Rule 1. Member's personal rights are infringed
- "Ultra Vires" = Beyond power
- s. 25(2)(a),(b) CA
- Lack of capacity by company to act
- Only shareholder may sue
- Member is suing on his own behalf
- Case: Edwards v Halliwell 2. Fraud on the minority
- Case: Cooks v Deeks
- Daniels v Daniels Minority Oppression s. 216 CA may be invoked when there is
- oppression of a member
- disregard of member's interest
- act that unfairly discriminates against member
- act that's prejudicial to a member s. 216 CA: the Minority Oppression section of the Companies Act Reliefs - Dominant members run the company as if they are the only shareholders i.e ignore minority shareholders [ Re HR Harmer Ltd ]

- No AGM held for 6 years, no audited accounts for 7 years [ Guan Seng Co Sdn Bhd v Tan Hock Chuan ]

- Failure to declare dividends [ Re Sam Weller & Sons Ltd ]

- Majority and the directors vote in bad faith ( dishonesty ) [ Re SQ Wong Holdings Pte Ltd ] Remedies - Winding up on just and equitable grounds.
S. 254 (1) (i) CA
Loch v John Blackwood Ltd

- Investigation into company's affairs
S. 232 CA
Ebrahimi v Westbourne Galleries Ltd s.155A CA:
Directors disqualified under LLP Act s.153 CA:
Persons above age 70 cannot become directors of Public Companies & Subsidiaries. s.153 (6) CA:
Exception to s.153 CA, Ordinary Resolution. Removal of Directors For private companies, removal of director before the expiry of the term of office can be achieved by an ordinary resolution.

However, under s.152 (1) CA for Public Companies,
Removal of director is allowed and this act overrides the M&A.

A resolution requiring "special notice" of 28 days before the date of the meeting to be given to the director who is going to be removed for him to prepare his defence. Chapter 6: Company Secretary Appointment & Qualifications
Authority
Duties & Responsibilities
Fiduciary Duties Directors' Duties A director shall at all times act honestly and use reasonable diligence
Case: Marchesi v Barnes / Re W & Roith Ltd

A director must not make improper use of any information acquired by virtue of his position to gain any advantage for himself or any other person or to cause detriment to the company.
Case: Regal (Hastings) Ltd v Gulliver

A director must disclose that he is a party at interest if he enters into a contract with a company.
Case: Re Duomatic Ltd Director's Duties The director has the duty to display care, skill and diligence.
Case: Lim Weng Wee v Public Prosecutor

A company is prohibited from making a loan to its directors of related companies or giving a guarantee or security in connection with such a loan.

Exceptions:
a. Exempt Private Company
b. Foreign Company
c. Advances to provide the director funds for expenses
d. Full-time director to purchase/acquire a home.
e. Full-time director where there is loan scheme for full-time employees.
f. Loan in the ordinary course of business by a bank, finance company or insurance company. Company's Secretary s.171 (1) CA:
Every company shall have one or more secretaries who are natural persons with a place of residence in Singapore.

A company secretary is an officer of the company with extensive duties and responsibilities.

They have the authority as an agent of the company to make any contracts or representation on behalf of the company.
Relevant Case: Panorama Developments (Guildford) Ltd v Fidelis Furnishings Fabrics Ltd

As an officer, they owe fiduciary duties to the company and is liable for any secret gains made from the company.
Relevant Case: Re Morvah Consols Tin Mining Co

The liabilities of a company secretary are the same as for directors under s.157 (3) CA.

s.157(3)(a) CA:
Liable to return such profit and also pay damages.

s.157(3)(b) CA:
Also liable to a fine of not more than $5,000 or jail not exceeding 1 year. Chapter 9: Shares Nature of Shares
Issue of Shares
Raising Corporate Funds
Type of Shares
"Modification of Rights" Clause
Variation of Class Rights
Objection of Class Rights Nature of Shares Definition: Interest of a shareholder in the company measured in a sum of money - in accordance with S.39(1)CA A share shall be movable property; a shareholder may sell, give them away or pledge them as security to a loan - S.121CA Issue of Shares 1. From Company directly
2. From existing shareholders Chapter 10: Share Capital & Financial Assistance Maintenance of Share Capital
Reduction of Share Capital
Buying of own shares & Financial Assistance
Share Buyback Chapter 11: Debentures and Charges Debenture
Charge
Fixed and Floating Charge
Registration of Charges
Effects of Non-Registration
Order of Priority of Charges
Winding Up Types of Shares 1. Ordinary Shares
- entitled to dividends
- entitled to return of capital in winding up
- full voting rights at GMs

2. Preference Shares
- Two types, Non-voting rights shares & Voting rights shares
- Types of P Shares include: Cumulative/Non-Cumulative, Redeemable, Convertible, Treasury
- entitled to dividends at fixed rate

NOTE: Share Capital may be divided into classes, with different rights attached (Stated in M&A) "Modification of Rights" Clause Modification of rights may not be varied without consent og specified proportion of shareholders (% stated in M&A or Articles) Variations of Class Rights TO TEST:
Test whether holders still have the same amount of rights before and after the amendment. If no change in amount = No class rights variation Objections to Alterations of Class Rights Courts will disallow if it will unfairly prejudice the shareholders of the class rights.
Right to apply to court under S.74CA only if there is a modification.

Also, if the modification of class rights was made to benefit majority shareholders and not the company as a whole, court may disallow. Maintenance of Share Capital RULE:
Issued share capital must be maintained to protect creditors and to preserve ranking of creditors in an insolvent liquidation. Reduction of Share Capital EXCEPTION TO THE RULE:
May reduce share capital if...
1. Passes a special resolution for reduction
2. Sends a notice stating that the resolution has been passed to Comptroller of Income Tax from 8 days thereof
3. Meets solvency requirements
4. Meets prescribed publicity requirements Buying of Own Shares & Giving Financial Assistance GENERAL RULE under S.76(1)CA:
Prohibited from acquiring own shares & shares of its holding company.
Prohibited from lending money on the security of its shares.
Prohibited from giving financial assistance, directly or indirectly, for the purpose of acquisition of it's own shares or shares in its holding company. EXCEPTIONS TO THE RULE under S.76(8)(a)to(j)CA and S.76(9)CA:
a. When company acts in good faith and in ordinary course of business
b. By order of court - S.216 & S.76 CA
c. Company is a bank, finance company or insurance company - S.76(9)CA
d. Under a scheme where employees can own shares in the company
e. Can acquire shares in holding company if financial assistance is > 10%
f. When it is approved by unanimous resolution of shareholders Share Buyback Under S.76B to S.76G CA, shares can be bought back only out of distrituble profits.
Once bought back, shares must be cancelled.
Must be permitted by the Articles + Must not exceed 10% of total shares of company
May be paid out of the company's capital or profits, as long as the company is solvent - S.76F CA

S.76F (4) CA - the company is solvent if,
a. Able to pay its debts at the time of payment + able to pay debts in the following 12 months as they fall due.
b. Value of company's assets is not less than the value of its liabilities at time of purchase and after it. Debenture Document which creates a debt or acknowledges it.
Repayment is secured by a charge over land, it is called mortgage.
Repayment is secured by a charge over other assets, it is called a debenture.
No security? It is called a note or unsecured deposit note. Charge Security for repayment of a debt - includes mortgages, liens and pledges. Fixed Charge Attaches to a specific asset, eg. Building, or Machinery
Cannot dispose/replace assets under fixed charge in the ordinary course of business without the chargee's consent.
Priority over Floating Charge, regardless of date of creation of charge. Floating Charge Floats above a specific category of assets, eg. Stocks, Debtors, or Cash
Can dispose/replace assets under fixed charge in the ordinary course of business without the chargee's consent.
Priority below Fixed Charges Registration Must be registered within 30 days of creation. Non-Resgistration Result in charge being void against liquidator and any creditor.
Defaults in charge will result in a fine not exceeding $1000 or a default penalty. Chapters 12, 13 & 14 Judicial Management
Receivership
Liquidation Judicial Management The aim of a judicial management is to rescue a financially troubled company, which is capable of returning to profitability, from premature liquidation.

Under S.227A CA, a company or its directors may apply to court to appoint a judicial manager if a. the company is or will be unable to pay its debts and there is reasonable probability of rehabilitating the company or preserving all of the business would be better served than resorting to a winding up.

Under S. 227B CA, the court would make a judicial order if the court is satisfied that the company is or will be unable to pay the debts, making JMO would allow the survival of the company and it is a more advantageous realisation of company assets. Situations where the court granted a JMO Case of Re Lim Seng Huat (S) Pte Ltd [1987] This was the 1st company to apply for a judicial management order.
In this case, the ground for the petition and basis of order was for an orderly disposition of assets rather than a forced sale. Petitioners were able to show an orderly disposition of assets allowing a higher dividends. Case of Re Wusang Engineering Pte Ltd [1987] In this case, the petitioners showed that it would not be of any advantage to the creditors to have the company wound up. If the company is allowed to complete the projects, which were in progress, the payment received would enable company to pay off creditors. Situations where court dismissed the petition for a JMO In the case of Re Cosmotron Electronics (Singapore) Pte Ltd [1989] Under S.227B(1)(b) CA, they did not meet the requirements. The survival of the company did not depend on JMO, the company has already agreed on disposing the manufacturing plant and the company failed to show that placing company under JMO would result in a more advantageous situation. Effects of Judicial Management No resolution shall be passed or order made for the winding up, no steps shall be taken to enforce any charge on or security over company's property and no other proceeding and no execution or other legal process shall be commenced or continued and no distress levied against the company.
JMO is in force of 180 days and an approved company auditor or one nominated by Minister shall be a JM under S. 227B(3)(a) & 227B(3)(e) Receivership Receivership is a situation whereby property of the company is placed under control of a receiver so that it may be preserved for benefit of affected parties.
Only an approved liquidator of the Official Assignee may be appointed as a receiver under S. 217(1) CA. Appointment by the Court The court may appoint a receiver if the debenture does not contain the power to appoint a receiver. However, the principal and interest must be in arrears, the company is being wound up and if the security is in jeopardy. Effect of Appointment of a Receiver The appointment does not mean that company comes to an end. The powers of the company and directors to deal with assets would be suspended but they can still carry on business.

Receivership sometimes place power for substantial assets in the hands of the receiver. Liquidation Liquidation is a process by which a company is dissolved, the business is closed down, assets sold off, the balance of assets are distributed to the members and creased to exist.

There are different types of winding up like compulsory winding up and voluntary winding up which includes a member's voluntary winding up or a creditors'. Order of Distribution of Assets on Winding Up 1. Secured Creditors
2. Preferred Creditors
Wages, Salaries, Costs and Expenses of Winding Up, Subcontractor of Labour
3. Retrenchment Benefit
4. Work Injury
5. Contributions to Provident Funds
6. Remunerations
7. Tax
8. Unsecured Creditors
9. Members of Company (In proportion to their shareholdings) Grounds for Winding Up (S. 254 (1)(a)) The court may order the winding up if the company has by special resolution resolved that it be wound (a), default is made by company in lodging the statutory report (b), the company does not commerce business (c), the company has no members (d), the company is unable to pay debts (e), the directors act in own interests (f) etc. Dissolution of the Company After all assets are being distributed, the liquidator may apply to court for an order that the company be dissolved he be released from his duties (S.275 CA). In the winding up, the company will be dissolved from the date of the order of dissolution (S.276 CA)

A final meeting may be called for liquidator to make an account and show how property is disposed of and how winding up is conducted. Other Grounds of Winding Up Winding up on grounds of insolvency- S.254 (1)(e)
Winding up under Just and Equitable Ground been infringed
Members' Voluntary Winding Up
Creditors' Voluntary Winding Up Incorporation Process Natural persons above the age of 18 years and of full legal capacity can incorporate a local company. s.145(2) CA - no person other than persons stated above shall be a director of a company. Step one: Search ACRA to see if proposed name is available, if so proceed to reserve the name - s.27 (12) CA. Step two: Prepare memorandum and articles of association.
Must state the name of the company, whether its liability is limited or unlimited, and the names of the initial members - s.22(1) CA. Effects of incorporation s.19(5) CA -
A company is a body corporate.
It may sue and be sued.
It has perpetual succession
It may have a common seal, with power to own land.
The liability of its members may be limited Lifting The Veil of Incorporation: Statutory Exceptions Under the companies act s.144(2) CA - Where a person signs or authorizes a cheque on which the company's name does not appear properly , he is personally liable to holder of that cheque unless the company pays upon it.

s.339(3) CA - Debts contracted with no reasonable expectations of it being paid, the person who contracted would be liable to pay these debts. s.403(2) CA - Where dividends are paid when there are no available profits, directors who authorized it will be personally liable. s.340(1) CA - Where the business was for fraudulent purposes, persons knowingly responsible would be personally liable for the debts of the company Lifting The Veil of Incorporation: Judicial Exceptions Attribution of some physical or mental state or character to a company:
De Beers Consolidated Mines Ltd v Howe

Tesco Supermarkets Ltd v Nattrass

Daimler Co Ltd v Continental Tyre and Rubber Co Use of company to evade legal obligations or to commit fraud: Gilford Motor Co v Horne

Jones v Lipman

Adams v Cape Industries plc Company employed as an agent or alter ego of its controllers: Smith, Stone & Knight Ltd v Birmingham Corp Where the company is a sham or mere facade: Re Bugle Press Ltd

Children's Media Ltd and Others v Singapore Tourism Board Groups of Companies: DHN Food Distributors Ltd v Tower Hamlets

New Line Productions Inc v Aglow Video Pte Ltd Contents of Memorandum The name of the company
Whether the liability is limited or unlimited
The full names, addresses and occupations of the subscribers to the memorandum Alteration of the Memorandum of Association As a general rule, any amendment to the memorandum of association required a special resolution, which can be passed by the votes of three-fourths of the members in favour of the resolution - s.26 (I) CA. Contents of the Articles Share capital and variation of rights
Liens and calls on shares
Transfer and transmission of shares
Forfeiture of shares
Conversion of shares into stock
Alteration of capital
General meetings
Notice of general meetings
Proceedings of general meetings
Votes of members
Borrowing powers Alteration of the articles Freely altered or added to, subject to the Act in particular s.26A and any provision included in its articles in accordance with that section and to any conditions in its memorandum, a company may by special resolution alter or add it its articles.

Allen v Gold Reefs of West Africa Ltd Restrictions on alterations The power to alter the articles may be excluded by a provision in the memorandum of association - s.37(1) CA
Thus, if the memorandum prohibits the alteration of certain provisions in the articles, such provisions cannot be altered unless all the members agree.
Entrenching provisions in the articles also cannot be altered by a special resolution in the usual manned by at least 75% majority vote of the members. Unanimous consent of all members is required for alterations of such entrenching provisions. - s.26 A (2) CA Effect of the memorandum and articles According to s.39 (1) CA, the memorandum and articles of association constitute a contract between the company and its members and among the members inter se, that is between a member and every other member. Contract between the Company and its Members
While there is a contract between company and its members, that contract does not extend tights conferred upon a member in his capacity otherwise than as a member.


Eley v Positive Govt Life Assurance Co Contract Among the Members Inter Se It is deemed that each member will observe all the provisions of the memorandum of association and article of association - s.39 (1) CA

Rayfield v Hands Relationship Between the Company and Outsiders It is implied from s.39(1) CA that outsiders are not parties to the contract contained in the memorandum and articles, and therefore cannot enforce any rights under the memorandum of association and articles of association

Raffles Hotel Ltd v Malayan Banking Bhd

Southern Foundries Ltd v Shirlaw

Re New British Iron Co, ex parte Beckwith
Full transcript