Disclaimer: This essay has been written by a law student and not by our expert law writers. View examples of our professional work here.

Any opinions, findings, conclusions, or recommendations expressed in this material are those of the authors and do not reflect the views of LawTeacher.net. You should not treat any information in this essay as being authoritative.

Maintain Balance between Rights of Shareholders

Info: 2551 words (10 pages) Law Essay
Published: 6th Aug 2019

Reference this

Jurisdiction(s): Malaysian law

1. Introduction

1.1 Corporate Governance

Corporate Governance is a procedure which interaction the company towards strengthens business prosperity and corporate accountability with the purpose of realizing long-term value for stakeholder, while talking into account the interest of other stakeholders (Finance Committee on Corporate Governance, 2001). According to Anglo-Saxon, corporate governance is a system which designed to maintain the balance between the rights of shareholders and the need of board and management (Anglo Saxon, 2001). Besides that, the function of shareholders in governance is selected directors and auditors to satisfy themselves that an appropriate structure is in place.

1.2 Companies Act 1965(Act 2199) Companies Amendment Act 2007

The Companies Amendment Act 2007 is passed by Parliament on the 23rd May 2007. It has brings major changes to the corporate governance in Malaysia (Shahfeezal Mohd Nor, 2008). The idea of the amendments is to enhance the best practice of corporate governance and ensure the investor confidence in Malaysian companies. Today we are discussing three major changes in the amendment act which are Directors and Offices, Meetings and Proceedings and Account and Audits.

2. Directors and Offices

2.1 Fiduciary duty of Loyalty – Section 132(1)

2.1.1 Old section and mischief in Directors and Offices

In the new amendment, the most significant and wide reaching effect is at directors and officers. Therefore, directors have an important role in a company and new amendment will enhances confident to the public. Firstly, in the old section 132(1) stated that a director shall at all times honestly and use reasonable diligence in the discharge of the duties. It has some mischief in this section which the director are liable to the company when the company can proven the director are not act in best interest to the company and it also no enough case law to define the words of “honestly” in Malaysia (Lee Swee Seng,2008).

Multi-Pak Singapore Pte Ltd v Intraco Ltd

Fact: City Carton owed a $2.5 million debt to Intraco because it is in financial distress and Multi-Pak was controlled by the same shareholders and directors as City Carton. Multi-Pak purchase the debt from Intraco has worthless and Multi-Pak has become insolvent. The Multi-Pak liquidation argued that Intraco is not paid anything for its share. The legal issue is whether the action of City Carton liable (Singapore Academy of Law, 2010).

Held: The words “honestly” do not mean that the director will breach when he acted dishonestly (Lee Swee Seng, 2008). The directors should only act to promote or advance the interest of the company. The courts are reasonably believed that the transactions were benefit to the company.

2.1.2 New section in Directors and Offices and how to helps in company enhances corporate governance

The change in the new section 132(1) is directors must exercise the power at all time in good faith of the company best interest and proper purpose. In the new section we no need to proven the words of “honestly” compare with the old section because the word is replaced with the statement of act in good faith and proper purpose.

Howard Smith Ltd v Ampol Petroleum Ltd

Fact: The Directors allotted shares to an appellant company which had made a takeover bid to defeat the majority position in the company held by the respondent company and rejected the appellant offer (Lee Swee Seng, 2008). The Directors argued that the allotment was made to obtain capital for the company. The legal issue is whether the action of director liable in exercise in his power.

Held: The Directors had improperly exercised their powers which to reduce the majority holding of other shareholders (Lee Swee Seng, 2008). The power to issue shares was used for a purpose of maintaining control of the company in the hands of the Directors themselves.

2.2 Approval of company required for disposal by directors of company’s undertaking or property – Section 132C (1)

2.2.1 Old section and mischief in Directors and Offices

The old section 132C(1) provide that the directors shall not execute any transaction for the disposal of a substantial part of the company undertaking or gaining the property of a considerable value which would harmfully affect the company performance, unless the transaction has been permitted by the company in general meeting (Lee Swee Seng, 2008). The mischief in this old section is that the directors were not prepared to say that a transaction would adversely affect the performance or financial position of a company.

Dato’ Toh Kian Chuan v Swee Construction and Transport Company (Malaya) Sdn Bhd (Lee Swee Seng, 2008)

Fact: A minority shareholder required to set aside an agreement for the sale of a piece of land because they alleged that the land was sold at undervalue for the benefit to the company. The legal issue is whether the transactions are liable.

Held: The old section 132C(1) permitted such transactions as the approval of the company in general meeting had been obtained.

Therefore, it would harmful to the company and the company can’t do anything because it has approval at the general meeting which states at the old section 132C(1). It will let the company become more worthless and the confident of investor in Malaysia will decline. The company sell the land on undervalued has adversely affects the performance of the company.

2.2.2 New section in Directors and Offices and how to helps in company enhances corporate governance

In the new Section 132C(1) has removed the requirement that the transaction must adversely affect the performance or financial position of the company (Chan & Koh, 2006). No matter it was bad or good to the company, directors not allowed to enter any kind of property transaction on behalf of company, but the Board of Directors can. It will help the company enhance good corporate governance. On the other hand, section 132C(1A) also provides the terms “substantial value” which mean same value by the provisions in the Listing Requirements of Bursa Malaysia (Samsar Kamar bin Abd Latif, 2008).

2.3 Nominee Directors – Section 132 (1E)

Nominee directors are directors who are nominated by a majority shareholder. His first duty is not allow this duty to be compromised by taking into the interests of his nominator.

Kuwait Asia Bank EC v National Mutual Life Nominees Ltd (A.Vijay Chandran, 2009)

Fact: When the company failed, the plaintiff was unable to recover his deposits. The bank was vicariously liable for the failings of the director of that company because the bank appoint the directors. The legal issued is whether the directors have a duty to the company.

Held: The directors owed separate duties which (1) there was a duty to the company to perform their duties as directors without gross negligence; (2) a duty to the bank to exercise reasonable diligence and skill in the perform as directors of company.

3. Meetings and Proceedings

3.1 Location of Annual General Meeting – Section 145,145A, 145(3)

3.1.1 Old section and mischief in Meetings and Proceedings

Section 145 state that it gives power to the shareholders to convene a general meeting when they have two or more members holding not less than 10% of the issued share capital desire the holding of a general meeting. On section 145(3), the members will receive a written notice before 14 days of the meeting convene

The old section 145A stated that any meeting is required to be held in the state where its registered office is situated (Samsar Kamar bin Abd Latif,2008) . This old section has restricted the place of a meeting of a company where it only can held at the company is registered and it does not apply to a meeting of board of directors.

Indian Corridor Sdn Bhd & Anor v. Golden Plus Holdings Bhd ( Malaysia Court of Appeal, 2008)

Fact: Two appellants are shareholders of the respondent holding 19.745%. Therefore, they convene a meeting to remove the directors of the respondent and to appoint others in their place. The meeting is held at Penang.

Held: The appellants are forever barred from requisitioning a meeting under section 145 of the Act if they want to remove one or more of the directors. Therefore, the appellants were not disqualified from requisitioning a meeting under section 145 of the Act. The point sought to be made is that the appellants acted in bad faith in fixing Penang as the venue of the meeting. This is because the registered office of the respondent company is in Kuala Lumpur.

3.1.2 New section in Meetings and Proceedings and how to helps in company enhances corporate governance

The new section 145A stated that all meeting of a company with its members will convene within Malaysia and the member can hold a meeting at more than one venue which using any technology that allows all members a reasonable opportunity to participate (Lee Swee Seng, 2008). This new section of act can minimize the delegation of third parties to participate the general meeting. Even though the members are scattering at other states, they still can use technology to meeting. This kind of action will let the members more active in general meeting because it can conduct at anywhere and anytime.

4. Account and Audits

4.1 System of Internal Control – Section 167A

4.1.1 New section in Account and Audits and how to helps in company enhances corporate governance

The introduction of this new section 167A in a company is necessary and timely safeguard the interest of the company and shareholders. The failure on the AWA Ltd v. Daniels suggests a need for directors to analyse the internal information and control system within organisation.

AWA Ltd v. Daniels (Lee Swee Seng, 2008)

Fact: Andrew Koval is a young foreign exchange manager which worked at AWA Company. Andrew had hidden the losses from management as there was no adequate internal control in proper records of that company. The company has made a loss and sued the auditors in alleging negligence in audit. Besides that, auditors counter claimed against company for contributory negligence on ground. The legal issue is whether the company or auditor wills responsibility in this negligence.

Held: The auditors negligent but also held the company to be 20% contributory negligent.

The section 167A states that the directors of a public company must have place a system of internal control that will provide a reasonable assurance that (Samsar Kamar bin Abd Latif, 2008):

assets of the company are safeguarded against loss from unauthorized use or disposition; and

All transactions are properly authorized and that they are recorded as necessary to enable the preparation of true and fair profit and loss accounts and balance sheets and to give a proper account of the assets.

If the directors fail to comply with this statutory obligation, the penalty is imprisonment of six months or RM 10,000 or both. This action not only restrict the director and accountant will do more properly of all transactions which we will disclosure to the public. It also will enhance the confident to the investor to that company.

4.2 Scope of Auditors’ Duties – Section 174, 174(2)

4.2.1 New section in Account and Audits and how to helps in company enhances corporate governance

The auditors have a duty to ensure that the accounts give a true and fair view of the company’s affairs and its profits and losses during the accounting period. They must also ensure that the accounts agreement with approved accounting standard. Finance Committee on Corporate Governance has suggested that auditors should be placed under further responsibility to report of fraud, dishonesty and other serious breaches to the relevant authority (Datuk Simon Shim, 2006).

Enron case

Enron which is the seventh largest company in USA was collapse and became the largest bankruptcy company (Jessica Goldman, 2006). They rigged the accounts and took the fateful step that was to lead it into a virtual world of fraud and deceit on a scale never before witnessed in corporate life – accounting fraud. Enron’s accounting fraud affected all their shareholders and employees. Furthermore, there are many jobs and billions of dollars were gone.

AIG case

There is another case in year 2008 which American International Group (AIG) was trying to report losses that were lower than the real amount. They aim to keep the stock price up so that they can maintain their comfortable life. AIG case also contains ethical issue which the top management always thinks for themselves profit, cheats in financial report and lied to investors (National News, 2006).

On the above case, it is important that to report fraud, dishonestly to the relevant authority. If acting without malice, auditors should be accorded protection from defamation suits. In future, government should more focus on the fact of auditor and account to protect public drop inside the trap of company.

4.3 Auditors and other persons to enjoy qualified privilege in certain circumstances – Section 174A (2A)

4.3.1 New section in Account and Audits and how to helps in company enhances corporate governance

Section 174A is amended by inserting subsection (2A) which provides that the auditor should not to be sued in any court or subject to any criminal or disciplinary proceedings for any report under section 174 submitted by the auditor in good faith and in the intended performance of any duty imposed on the auditor(Lee Swee Seng, 2008).

DaimlerChrysler case

The legal issue of this case is whether DaimlerChrysler’s accounts are act in disclosure and transparency. Before that, DaimlerChrysler was using long-standing tradition of keeping executive pay undisclosed but the Chief Executive Dieter Setscrew decided to deteriorate the old style at Jan 31, 2006. He published out the detail of pays including his own pay (Gail Edmondson, 2006). Means DaimlerChrysler’s accountings are accurate disclose and transparency. Therefore it can increase the confident of the investors.

5. Conclusion

Companies Amendment Act 2007 is an evidence which the Malaysia government and society to strengthen the company law and corporate governance. This major changes not only directors; it’s also including the main component in the company such as account and audit or meetings and proceedings. The changes will help to enhance the good corporate governance and responsible management. In the new amendment act, the most significant and wide reaching effect is at directors and officers. Although, reformulating the directors’ duties is not easy but it as to ensure our corporate governance can facilitate business well.

(2000 words)

Cite This Work

To export a reference to this article please select a referencing stye below:

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.

Related Services

View all

DMCA / Removal Request

If you are the original writer of this essay and no longer wish to have your work published on LawTeacher.net then please: